Carnival CEO on demand for cruises: 'All we see are green arrows'

Shares of Carnival (CCL) closed lower on Friday despite reporting record third-quarter revenues of $6.9 billion. Carnival CEO Josh Weinstein joins Yahoo Finance to break down why the company isn't concerned with the stock price and has a positive outlook going forward.

Weinstein boasted the company's strong occupancy with bookings at higher prices. "Cruising is inherently an unprecedented value compared to land-based alternatives," Weinstein said, pointing out why consumers are willing to spend money on a cruise vacation despite recent economic headwinds. But travelers aren't just booking vacations. They are spending more when they get on board too. "As we look out over the next 12 months, the onboard spend levels haven't slowed down, the absolute amount that folks are paying for when they're on board for experiences...hasn't slowed down," Weinstein said.

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Video transcript

[AUDIO LOGO]

- Carnival Corp out with better-than-expected results. Let's get right into this quarter here with our Carnival CEO Josh Weinstein. Josh, good to see you again. Thanks for making time for Yahoo Finance. And to me, I have to be up front with you. This is a head-scratching market reaction. Why do you think the stock is selling off in what appeared to be a pretty darn quarter, a good quarter and pretty darn good outlook?

JOSH WEINSTEIN: Well, you know, our job is to deliver what we say and ideally outdeliver. And that's exactly what we did in our third quarter. We outdelivered on revenue, on the booking trends, on the onboard spend.

So really, I couldn't be prouder of the team for what they've accomplished. And we carry that forward. And we upped our guidance for the full year. And we said we expect our per diem trends to continue as we continue to just close that occupancy gap back pretty much entirely to historical levels. As a result, we took up our yield guidance for the fourth quarter and the momentum is great. So, you know, all I can tell you is we'll keep trying to just deliver on or outdeliver. And hopefully, the stock will match up with that.

BRIAN SOZZI: Is there something near term that's giving you pause?

JOSH WEINSTEIN: Well, from my perspective, as far as how we're running the business, really not much. You know, on the demand side, all we see are our green arrows going up. You know, we've got record-booking levels. We're 10 points better booked today than we were a year ago looking out for the next fiscal year. On top of that, we're booked at higher prices.

And so we are-- we've got some stickiness as we look out over the next 12 months. The onboard spend levels haven't slowed down. So the absolute amount that our folks are paying when they're on board for experiences, be that F&B, shore excursions, casino, communications, you name it. That hasn't slowed down.

And one of the most encouraging things is, you know, a year ago, we were talking about a bit of a dichotomy between the pace of the recovery for North America versus Europe. Well, I'm really proud to say that our European brands-- AIDA, Costa-- they outperform too. And they just came off of a third quarter where their yields were higher than 2019. And they're driving a lot of that booking outperformance as we look forward. So as far as I'm concerned, from that perspective, everything that we're trying to achieve, we are hitting the mark and then some. So-- well, remains to be seen.

BRIAN SOZZI: Gosh, I thoroughly read your earnings release. I'd like to, of course, listen to the earnings call. And your report-- bookings strong, occupancy strong, at higher prices. You're calling out good things for the next 12 months in terms of forward bookings. Square that up with what we're seeing from the US consumer. We're seeing credit card delinquencies rise. We're seeing auto sales slow. But yet, consumers are getting onto a cruise ship. How do you explain that?

JOSH WEINSTEIN: Well, I think you got to start on the premise that cruising is inherently an unprecedented value compared to land-based alternatives. We quantified anywhere from 25% to 50%. So ideally, we want to outperform in any environment.

And in an environment where maybe the macroeconomic trends are getting a little worse-- you know, candidly, we've heard about a recession for the last 18 months. And I'm sure it will come. But let's say it is coming. You've got an experience that cruising can provide and the relative value, making your vacation dollar go further, plays very well into cruising.

And so maybe there's just a combination of the fact that we offer a great product. And people are really starting to see the value. We're really trying to push on that messaging. So people who have never cruised before can really understand that and come sail with us. And I think that's working.

As a matter of fact, if you look at our trajectory of our guests carried, our loyal guest base is pretty much been consistent in absolute numbers. When you look back from the fourth quarter of last year all the way through the third quarter, a huge amount of growth. And it's all been really pushed forward by first time cruisers and new to brand. So the message is getting out.

BRIAN SOZZI: Do you get worried that if we do get this government shutdown-- your business in large part is all about confidence. I have confidence that I'm going to have a job a year from now. I'm going to put a deposit down on a cruise vacation. There is confidence in the financial markets. Your company that is cutting debt but still has a lot of debt on the books. What would a government shutdown mean to a business like yours?

JOSH WEINSTEIN: Well, that's a great question. And I wish I had an answer for you. You know, we've been through government shutdowns before. And we've been through recessions before. And the good thing is we are a resilient business because of that value play, because of the advanced nature of our bookings where we have a pretty good amount of visibility as opposed to lots of other industries.

And again, you know, holidays, vacations, they're sacred to a lot of people. And so they will move heaven and Earth to figure out how to make ends meet in order to protect the sanctity of the vacation. And we appreciate that tremendously. We understand how big of a responsibility that gives us to make sure we deliver. And the MPS scores are great. The satisfaction scores are great. So we think we're really clicking on all cylinders.

BRIAN SOZZI: I need to give you some props, Josh. We-- I talked to you at Milken. And you really made it a key point to point out, Brian, we're cutting debt. And we're going to cut it aggressively. And you have. Where do you want to be in terms of debt for Carnival looking out over the next year?

JOSH WEINSTEIN: Well, I'll tell you, we have-- we've come off of our peak of a bit over about $35, $35 and 1/2 billion. We're already down over 10%. And I'm real proud of that trajectory. I'd say, as we look over the next three years, we've set out targets that get us through 2026.

And what we've said is, very clearly, we expect to hit investment grade credit metrics by the time we're done with 2026. And so that would imply that we've got another $10 billion to go. And we expect to be able to accomplish that over the course of the next three years.

I would say next year is, relatively speaking, when we have the most growth in capacity. We've got three ships coming next year. So that'll be a year that won't necessarily be as big of a driver of debt reduction. But after that, with one ship in 2025 and zero ships coming in 2026, that gives us a tremendous amount of headroom to kick off billions of free cash flow to directly go to pay down debt. Because getting our balance sheet back to a much better place is very much a primary focus.

BRIAN SOZZI: Good to see that narrative continuing. All right, so your bookings are good. You seem like you're ready to withstand if a government shutdown of any kind. Now, what about oil prices? We have seen oil prices tick up to about $100 a barrel. How much of a headwind is higher fuel to your business right now?

JOSH WEINSTEIN: Yeah, no doubt. No doubt that hurts. And it covers up actually a lot of the good things that we talked about, I think, on our earnings call today. You know, we outperformed in the third quarter, for example. And we actually raised our guidance, our EPS guidance for the full year.

You know, it's about $200 million worth of good things that we're doing on the revenue side, on the fuel consumption side, which I'll come back to. But, unfortunately, the change in fuel prices and the dramatic nature of this spike has basically taken $125 million or so away from us. Now, the one thing that we are maniacal about is you can't really control the price of fuel, right?

But what you can control is how much you use. And no matter what the environment is, no matter what type of fuel we put into our ships, if we use less, we save money. And so we actually are going to be outperforming what was a pretty audacious goal of a 15% carbon and-- pardon me, fuel usage reduction versus 2019 and carbon intensity. We're going to hit 16% this year.

So 16% reduction in unit consumption. That translates to a $375 million savings in 2023 as a result of that activity. So we're going to continue to focus on the one thing we can control, which is using less.

BRIAN SOZZI: Good to see that turnaround continuing at Carnival. Carnival CEO Josh Weinstein, good to see you again. We'll talk to you soon.

JOSH WEINSTEIN: Sounds good. Thanks very much.