Cruise line operator Carnival (CCL, Financial) experienced another wave of demand in Q3, enabling it to exceed EPS and revenue estimates while delivering record results across various metrics. Despite this, the stock is drifting lower as investors lock in prior gains. Along with rivals Norwegian Cruise Line (NCLH, Financial) and Royal Caribbean (RCL, Financial), Carnival has been benefiting from robust demand for cruises, creating lofty expectations that drove shares higher by 25% since mid-August.
Coming off an impressive beat-and-raise performance in Q2, where CCL touted strength in its European and North American brands, the company upped the ante in Q3. It achieved new quarterly records for:
- Operating income: $2.2 billion (+34% year-over-year)
- Adjusted EBITDA: $2.8 billion (+25% year-over-year)
- Revenue: $7.9 billion (+15.2% year-over-year)
The market, however, was already anticipating strong Q3 results, putting the spotlight on CCL's guidance.
While the company increased its FY24 EPS guidance to $1.33 from $1.18, partly reflecting its Q3 outperformance, its Q4 EPS guidance of $0.05 slightly missed the mark. Additionally, its Q4 Net Yield guidance of approximately 5.0% represents a drop-off from the +8.7% registered this quarter.
- Net Yield is a key demand metric in the cruise line industry, stripping out direct costs such as air transportation and travel agent commissions from the revenue line.
- CCL is also anticipating expenses to increase materially in Q4, forecasting adjusted cruise costs (excluding fuel per available lower berth day) of +8.0% year-over-year (constant currency), up from +3.5% in Q3.
In the big picture, these are relatively minor issues that do little to negatively alter the bullish narrative for CCL.
- The momentum behind CCL's business shows no signs of slowing. Nearly half of 2025 is already booked, with remaining inventory running at lower levels compared to a year earlier. This combination of healthy demand and leaner inventory is fueling record ticket pricing.
- The 2026 season is off to a remarkable start, with CCL generating record booking volumes over the last three months.
Overall, there was plenty to like with CCL's Q3 earnings report, which showed that consumers are still willing to spend on experiences like cruises. However, with the stock sailing sharply higher over the past several weeks, CCL's Q4 guidance provided enough reason for investors to take some gains off the table.
