Carnival Corp.’s Lowered Outlook Raises Concerns for Cruise Industry
Carnival Corporation reported strong quarterly results today, but also lowered its outlook for growth in its net yields and issued guidance below Wall Street expectations. The price of Carnival’s stock tumbled nearly five percent as it followed its peers in citing the impact of the war in the Middle East on bookings and consumer confidence.
Management of Carnival Corporation cited the effects of the conflict in the Middle East, saying it impacted its European deployments. CFO David Bernstein highlighted “extreme geopolitical volatility and historic low levels of consumer sentiment throughout the quarter,” saying that the company was expecting slightly lower occupancy and a revision in both ticket and onboard revenue. He also cited, more generally, higher crew travel costs and freight resulting from the Middle East disruption.
Carnival Corporation lowered its expectations for Net Yield growth to 3.2 percent for the remainder of the year from a previously projected better than 4 percent. Management called the revision to yield “transitory,” but it created concerns among investors. This was despite Royal Caribbean Group in April also citing softness in bookings in the Mediterranean and West Coast of Mexico, and Norwegian Cruise Line Holdings also highlighting “headwinds” due to the conflict in the Middle East. Both also lowered their outlook for net yield growth.
Wall Street analyst C. Patrick Scholes of Truist Securities wrote in his comments that he believed that some investors were expecting Carnival to follow the others in lowering its forecast for net yield growth, but that there was no clear consensus among investors.
Josh Weinstein, CEO of Carnival Corporation, sought to offset the concerns by highlighting that the corporation’s cruise lines are 93 percent booked for the year, giving them less inventory remaining for sale than this time last year. He said they would still achieve record net yields, and the outlook for 2027 and beyond remains strong.
"We achieved another quarter of record results, marking our twelfth consecutive quarter of record net yields and delivering over 20 percent more to the bottom line,” highlighted Weinstein. Carnival reported records for adjusted net income, revenues, and net yields for the quarter. It also said that customer deposits reached an all-time high of $9 billion.
During the quarter, the company’s costs were up but in line with expectations. Gross margins, however, were down due to fuel costs. They said they have followed a sharpened cost discipline, which helped to restrain increases, and fuel costs had come in lower than projected after the sharp increases due to the conflict in the Middle East.
Capital costs reflected $600 million in newbuild, lower as Carnival is not taking delivery on new ships and has a pause in its deliveries. In total, the corporation has just 10 ships on order, five for Carnival Cruise Line, two for AIDA, and three long-term for Princess Cruises. They said the figure, however, does not include potential stage payments for ship orders that the company may place in the future. The newbuild capital is currently half its non-newbuild capital expenditures, which are at $1.3 billion this year.
Management further sounded an encouraging note, saying that recent booking trends already suggested that they are beginning to see a reversal of the recent headwinds.
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After today’s stock decline, Carnival Corporation’s share price is still up seven percent year to date and 20 percent in the past year. It has outperformed Royal Caribbean Group, which is up 13 percent in the past year, although it started at a higher valuation than Carnival and recovered more quickly from the pandemic. Norwegian Cruise Line Holdings’ stock price is down more than 10 percent this year due to broader investor issues, but it is still up 10 percent for the past year. The strongest performer is Viking, as its stock price is up more than 100 percent in the past year.
Despite the lowered forecasts for net yield growth from the three biggest public companies, investors remain positive on the outlook for growth in the cruise industry. The companies also have a positive outlook, having committed to nearly $100 billion in shipbuilding orders primarily over the next decade.