Carnival raises annual profit forecast on resilient cruise demand, high costs loom

Carnival Corp raised its fiscal 2025 adjusted earnings per share forecast to $2.14 from $1.97, citing robust demand, higher ticket prices, and increased onboard spending, while also beating Q3 analyst estimates with $1.43 adjusted EPS on $8.15 billion in sales. Despite the upgraded outlook, the company's shares fell approximately 5% due to concerns over rising fuel costs, a projected 3.3% increase in cruise costs excluding fuel, and significant future investments in maintenance and destinations, particularly in 2026, which are expected to weigh on earnings growth.

Analysis

Carnival Corp. delivered strong fiscal third-quarter results, beating analyst estimates with an adjusted EPS of $1.43 on $8.15 billion in revenue, driven by robust consumer demand, higher ticket prices, and increased onboard spending. This operational strength prompted management to raise its fiscal 2025 adjusted EPS forecast to approximately $2.14, a notable increase from the prior $1.97 guidance. The company is actively investing to sustain this momentum, highlighted by a $600 million development of its Celebration Key private destination. Despite this positive outlook and a 23% stock gain year-to-date, shares declined roughly 5% following the announcement. The market's apprehension stems from significant forward-looking cost pressures, including a projected 3.3% rise in annual cruise costs excluding fuel, and elevated fuel expenses. Furthermore, CFO David Bernstein explicitly warned that heavy investments, particularly an extensive dry dock schedule in 2026, are expected to impact year-over-year assumptions by up to one percentage point, a sentiment echoed by a Morningstar analyst who cited these future expenditures as a drag on earnings growth.

Key Decisions for Investors

• Consider the current share price weakness as a potential entry point, balancing the stock's 5% drop against the company's upgraded FY25 earnings forecast and demonstrated pricing power.
• Investors should closely monitor forward-looking cost metrics, especially the projected 3.3% increase in non-fuel costs and volatile energy prices, as margin erosion could offset top-line growth.
• Factor in the significant capital expenditures planned for 2026, including resort investments and ship dry docks, which are explicitly expected to weigh on earnings growth and could temper medium-term profitability.