Carnival plc (CCL) Ordinary USD1.66

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Carnival’s full-year revenue increased by 6.4% to $26.6bn, driven by growth in both ticket sales and onboard revenue.

Underlying cash profit (EBITDA) grew 17.5% to a record $7.2bn, helped by disciplined cost management. Strong demand for last minute sailings in the final quarter contributed to a small beat on guidance.

Free cash flow more than doubled to $2.6bn largely due to a reduction in capital expenditure. Year-end net debt was $24.7bn.

The company has reinstated dividends with an initial quarterly payment of $0.15 per share.

Underlying cash profit for 2026 is expected to increase to around $7.6bn.

Carnival has also proposed an overhaul of its corporate structure which likely includes moving to a single listing on the New York Stock Exchange.

The shares were up 8.0% in afternoon trading.

Our view

Carnival’s full-year numbers beat previously upgraded guidance. But it was the outlook we were most interested in, and record booking volumes in the last quarter supported better than forecast profit guidance for 2026. The added sweetener of the first dividend since the pandemic was enough to see markets respond enthusiastically.

Despite some cracks appearing for consumers in the key US market, demand for Carnival’s pleasure cruises is proving its resilience. Further out, fleet expansion is planned to accelerate growth, but there are no launches planned until 2027. Remember, cruising can be a fickle business and there’s no guarantee that demand will align with planned capacity growth. Geopolitical unrest and economic uncertainty are the key risks to monitor here.

While hopes for a soft landing remain alive, we still see some material downside risks to the global economy. The outlook for world peace is a much harder call to make, with tensions in the Middle East, as well as those between Russia and Ukraine still running high. It's not only demand that can suffer from high conflict levels, but also marine fuel prices, a key cost for Carnival’s thirsty cruise liners. But as it stands, oil prices are at a near five-year low which is working in the company’s favour.

That’s just as well. A stretched balance sheet means there’s less wiggle room if cash flows start to move in the wrong direction. Net debt currently stands at $24.7bn. At 3.3 times expected underlying cash profits (EBITDA), it’s still very high but looking more manageable than it has for a while. That’s given management the confidence to reinstate dividend payments. This year’s yield looks to come in at around 2%, but there could be scope for dividend growth if debt continues to fall. There are no guarantees.

Carnival’s management can take a lot of credit for delivering a robust and sustained recovery from the significant damage inflicted by the COVID-19 pandemic. It’s a leaner operation whose focus on customer experiences lends itself to strong pricing power.

But we think the performance has been broadly recognised by a rebound in the valuation. If the strong momentum in the business continues, we do see scope for further earnings upgrades, and with it upside to the valuation. But the potential for macroeconomic upsets means investors must be prepared to tolerate some choppy waters.

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.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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