Carnival (NYSE: CCL), the world’s largest cruise company, has been doing swimmingly lately. That wasn’t expected when the U.S. announced tariffs in April.
Many experts believed the tariffs would lead to an economic slowdown, if not a recession. And the thinking was that would depress travel. But U.S. GDP expanded 3.8% annualized in the second quarter. So consumers still have enough money to hit the high seas.
And Carnival is a major beneficiary. It has eight lines, more than 90 ships and a wide range of prices. But it’s more dependent on lower income customers than its major competitors, such as Royal Caribbean Group (NYSE: RCL) and Norwegian Cruise Line (NYSE: NCLH).
Carnival’s earnings numbers demonstrate its strength. It registered revenue of $8.2 billion in the quarter ended Aug. 31, its 10th straight quarterly record. The total was up 3.3% from a year earlier. The company’s net income also hit a record high — $1.9 billion, up 6.7% from a year earlier.
It refinanced $4.5 billion of debt during the quarter and prepaid another $700 million of debt. debt. Its debt-to-Ebitda ratio (earnings before interest, tax, depreciation and amortization) shrunk to 3.6 in the latest quarter from 4.7 a year earlier.
Investment grade rating, earnings outlook
The company aims to eventually push it below 3 to regain its investment-grade rating. Slicing the debt may allow Carnival to resume dividend payments, which it halted in 2020 because the Covid pandemic hit it hard, the company says. And ultimately it may implement stock buybacks.
In its earnings report, Carnival raised its outlook for fiscal-year 2025, which ends Nov. 30. It anticipates the key net yield measurement will rise 5.3%, 30 basis points higher than it previously forecast. Net yield measures total revenue less commissions, transportation, and other expenses, divided by the number of available passenger cruise days.
And the company sees adjusted net income rising 55% from 2024. The guidance was increased by $235 million from the last estimate. Adjusted income totaled a record $2 billion in the latest quarter.
In addition to macro travel trends, Carnival has benefited from the opening of its Celebration Key private resort on Grand Bahama Island, giving it a marketing opportunity. Another promotion has Carnival entering a float in the New York City Thanksgiving day parade to promote its Alaska cruise.
Stock surge and correction
All of this has been good for the company’s stock price, which has jumped 60% over the past year and 328% over the past three years. That seems to have given investors a case of sticker shock. Shares have slid 8% in the last month.
Still, the Carnival’s outlook looks strong. Bookings for 2026 are in line with 2025 record levels and at historically high prices, the company said.
Over the past four years, Carnival and its competitors had to offer 25%-50% discounts compared to land vacations to attract passengers, notes Morningstar analyst Jaime Katz. “We expect this discount to shrink over time, bolstering pricing growth as Carnival lifts pricing toward parity, aided by the firm’s brand intangible asset.”
That, along with strong demand, bodes well for Carnival she says. Over the next 10 years, Katz anticipates its return on capital will exceed its 10% cost of capital.
So it may be smooth sailing ahead for the company.
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