Third-quarter revenue rose 3.5% to a slightly better-than-expected $8.4bn, driven by strong onboard spending. Adjusted cash profit (EBITDA) was flat at $3.0bn, with growth held back by higher fuel prices.
Free cash flow was also flat at £0.7bn. In the first nine months of the year, net debt has fallen about 8% to $22.7bn. During the same period, Carnival returned $1.8bn to shareholders, including $1.2bn of share buybacks.
Full-year adjusted cash profit guidance was nudged slightly higher to $7.1bn. For next year, pricing and occupancy remain at record levels, with customer deposits rising to $7.6bn, $0.5bn higher than the prior-year record.
The shares were up 12.1% after following the announcement.
Our view
Despite higher fuel prices and disruption to European bookings, strong execution allowed Carnival to nudge full-year profit guidance slightly higher. With demand shaping up well for next year, too, markets welcomed the update. As attention shifts to 2027, market forecasts for revenue growth approaching 3.4% don’t look demanding to us. It’s still early, but booked occupancy and pricing are already at record levels.
Measured additions to capacity should provide a tailwind, supporting underlying cash profit growth forecasts of nearly 8% next year, which points to margin improvement. Pricing should help, but tighter cost control is also a focus. Fuel efficiency improved during the peak summer sailing season, and non-fuel cost growth came in below guidance.
However, fuel remains a key swing factor, with higher prices and currency movements reducing third quarter adjusted profit by $131mn. Current forecasts point to lower fuel prices next year, which could provide a tailwind, although the Iran war makes the outlook more unpredictable than usual.
Further ahead, Carnival’s medium-term performance targets are supported by fleet upgrades and investment in exclusive destinations. These include the $600mn Celebration Key development in the Bahamas, alongside upgrades to Half Moon Cay and a new destination in Honduras, to attract guests and capture more of their holiday spending.
Near-term appetite for cruises looks strong, but travel is cyclical. A prolonged squeeze on consumer spending could push holidays down the pecking order. Planned capacity growth should support earnings if demand remains healthy but could also leave Carnival more exposed if booking momentum starts to fade.
Geopolitical unrest and economic uncertainty remain the main risks to Carnival’s target of growing adjusted earnings per share by more than 50% between 2025 and 2029. Management is nevertheless confident enough to target around $14bn of shareholder returns in the four years to 2029 through dividends and buybacks. Improving cash generation supports that ambition, and continued balance-sheet repair adds some prudence, although returns are never guaranteed.
Carnival is a market leader in an industry with a long track record of growth. Higher oil prices have weighed on profits and the valuation, but strong summer execution has steadied the ship. We think that the valuation still reflects doubts about Carnival's ability to deliver its medium-term targets. Continued delivery should improve confidence and could unlock attractive upside. However, sensitivity to geopolitics, oil prices and the economy could still knock the company off course.
Environmental, social and governance (ESG) risk
Consumer services companies are medium-risk in terms of ESG, and very few companies are excelling at managing them. That leaves plenty of opportunity for forward-thinking firms. The primary risk-driver is product governance. The impact of their products on society, labour relations and environmental concerns are also key risks to monitor.
According to Sustainalytics, the company's overall management of material ESG issues is strong, with a robust governance structure and reporting framework in place. However, Carnival still faces significant exposure to risks linked to emissions, effluents and waste as well as quality and safety issues. Carnival has implemented carbon reduction programmes, but shipping is likely to be one of the last forms of transport to be decarbonised.
Carnival key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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