Better late than never, Carnival Corp. (CUK 1.01%) (CCL 1.79%). The country's largest cruise line stock -- by fleet capacity and revenue -- saw its shares soar 10% on Friday after posting better-than-expected fiscal fourth-quarter results earlier in the day. At least six major Wall Street analyst firms have boosted their price targets on the stock following the well-received financial update.
Carnival and smaller rivals Royal Caribbean (RCL 2.58%) and Norwegian Cruise Line (NCLH 4.45%) had disappointed the market last time out. Carnival's year-over-year revenue rose a modest 3% for its fiscal third quarter. It landed ahead of Wall Street profit targets, but this was the first time it hasn't posted a bottom-line beat in the double if not triple digits in more than two years.
Image source: Getty Images.
Cruel summer
Royal Caribbean and Norwegian didn't fare much better when they reported a month later. They both saw their revenue climb by just 5% for the third quarter of the calendar year. For Royal Caribbean, it was also its weakest earnings beat in more than two years.
The industry's soft showing was problematic because this is a seasonal business. The third quarter covers the summer sailing season, which accounts for the largest quarterly revenue and the lion's share of the profitability for the three leading cruise line operators. The cruise lines needed to bounce back even during the seasonally sleepy fourth quarter, and Carnival is kicking things off with a strong start. Royal Caribbean and Norwegian -- operating on calendar quarters -- won't announce fresh financials for at least another month.
NYSE: CCL
Key Data Points
Come on in, the water's fine
Carnival stock investors were treated to a robust performance. Revenue rose 7% to $6.3 billion. This is a far cry from its heady gains following the pandemic, which came out of the industry's prolonged shutdown, but it's more than double the 3% year-over-year top-line move it posted in the fiscal third quarter. Carnival achieved the sequential acceleration despite flat capacity growth over the past year.
The bottom line is the better story. Good things happen when a business is growing, particularly in a scalable industry with a cost structure that relies largely on fixed expenses. With net yields rising, even a slight improvement on the top line can lead to a significant boost in profitability.
Carnival's adjusted earnings soared 140% for the fiscal fourth quarter, rising 60% for the entire fiscal year. On a per-share basis, the cruising bellwether returned to double-digit beats on the bottom line. It credits the beat on strong last-minute bookings and effective cost management.
| Period | EPS Estimate | Actual EPS | Surprise |
|---|---|---|---|
| Fiscal Q3 2023 | $0.75 | $0.86 | 15% |
| Fiscal Q4 2023 | ($0.13) | ($0.07) | 46% |
| Fiscal Q1 2024 | ($0.18) | ($0.14) | 22% |
| Fiscal Q2 2024 | ($0.02) | $0.11 | 650% |
| Fiscal Q3 2024 | $1.15 | $1.27 | 10% |
| Fiscal Q4 2024 | $0.07 | $0.14 | 94% |
| Fiscal Q1 2025 | $0.02 | $0.13 | 485% |
| Fiscal Q2 2025 | $0.35 | $0.24 | 46% |
| Fiscal Q3 2025 | $1.32 | $1.43 | 9% |
| Fiscal Q4 2025 | $0.25 | $0.34 | 39% |
Data source: Yahoo! Finance. EPS = earnings per share (adjusted).
Sailing with tailwinds in 2026
Carnival stock is beating the market this year with a 25% year-to-date gain. Investors will also start to receive quarterly dividend checks again, helping to pad their total returns.
Carnival announced the reinstatement of its payouts on Friday. The $0.15 per share that it will be sending out to its shareholders every three months is significantly less than the $0.50 per share distribution it last paid out in February 2020, but it's a sign of financial stability for Carnival. The new payout translates to a 1.9% dividend yield.
It's also refreshing to see how Carnival's per-share earnings guidance improved every quarter this year. The company started with an original goal of delivering an adjusted per-share profit of $1.70, which was upgraded to $1.83, $1.97, and $2.14 through the first fiscal quarters of the year. Carnival's adjusted net income ultimately clocked in at $2.25 per share.
Carnival sees continued improvement in the new fiscal year, which began earlier this month. Booking volumes for 2026 and 2027 sailings remain ahead of where they were a year ago for the two subsequent years. The stock is trading for less than 14 times trailing adjusted earnings. Momentum is favorable in the near term.
A lot can happen to disrupt the cruise line industry in the year ahead, but for now, it's hard to bet against an attractively priced leader that should now start appealing to income-investing landlubbers.
