Carnival (CCL 1.83%) (CUK 1.88%) is the largest cruise operator in the world, but this industry leader has had a rough few years. Its business has rebounded, but there are some leftover effects that are still weighing on its financial statements.
It’s in a much better place than it was last year at this time, with higher revenue, positive net income, and lower debt. It’s also benefiting from lower interest rates. Let’s see where it could be in a year from now.
Setting sail
Carnival continues to report record quarter after record quarter. Some of the records can’t go on forever, like price and occupancy, but it should be able to keep growing sales and net income, even if demand moderates.
The fiscal 2024 fourth quarter (ended Nov. 30) was the most recent example. Here’s a rundown of some of the highlights:
- Record revenue of $5.9 billion, up 10% year over year
- Record fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.2 billion, up 29% year over year
- Record net yields, up 6.7% year over year
- Cumulative advanced booked position was at a record for the 2025 full year
- Booked position for 2026 broke previous records in the fourth quarter
Net income wasn’t a record, but it was positive, and that had been escaping Carnival for several years. It reported positive net income of $303 million in the fourth quarter, up from a $48 million loss the year before, and $1.9 billion for the full year. Carnival is in its best-ever booked position for both price and occupancy, coming from higher ticket prices and higher on-board spending, and this is exceeding unit cost and leading to higher profits. For 2025, management is guiding for net yields to improve by 4.2% and adjusted net income of $2.3 billion.
Carnival is setting itself up to meet demand and generate more. It got three new ships last year, and it’s opening up two new exclusive destinations in the Caribbean. Its advertising campaigns resulted in a 60% increase in paid search clicks and a 40% increase in web visits, which is a strategy that should fuel further demand.
In a year from now, I would envision higher revenue, increasing net income, and strong demand. It’s entirely possible that the high demand streak continues into 2026, with bookings out through 2027. It could depend on interest rate moves and other economic trends. If interest rates keep declining, consumer spending could increase. If things stay the same way they are today, demand could begin to stabilize.
Dealing with debt
The main negative factor that continues to plague Carnival is its debt. The debt remains well above its historically normal levels, ending 2024 at $27.5 billion. That creates risk, because demand could wane before the debt is paid off, limiting the company’s ability to pay it back responsibly.
With this debt level, Carnival stock may not continue its climb, but it is likely to rise as the debt is reduced. This is how the stock has moved over the past five years, since Carnival assumed the high debt. Notice how the stock has moved conversely with the debt level over the past two years.
The debt is coming down as the business improves, and the net debt-to-EBITDA ratio improved from 6.7 in 2023 to 4.3 in 2024. Management is expecting it to further decline to 3.8 this year.
One year from now, the debt is likely to be diminished but not gone. The stock price should reflect that. If interest rates go lower, the stock is likely to rise higher. Patient investors can buy today and benefit from the stock’s potentially slow but probable eventual rise back to previous highs and even higher.
