Carnival Earnings: Pricing Continues to Shine, Displaying Brand Prowess, Rendering Value in Shares

Narrow-moat Carnival printed banner results in its third quarter. This included as-reported net revenue yield growth of 8.7% (70 basis points better than we forecast), net cruise costs excluding fuel that were flat (450 basis points less than our estimate), and $1.37 in adjusted EPS, handily outpacing our $1.10 projection. However, we believe shares stalled on a fourth-quarter cost outlook that was worse than expected, with as-reported net cruise costs excluding fuel set to rise 9.5%. Given that timing of expenses often shifts between periods and costs are on track for 4% growth for 2024, we think Carnival is doing a solid job managing costs in a still-rising cost environment. Moreover, we think the momentum in demand outweighs any higher near-term costs (with 2025 absorbing operating expenses related to the opening of Celebration Key and higher dry dock days), as evidenced by Carnival’s cumulative advanced booked position for 2025 ahead of 2024 levels at higher constant currency prices.