Carnival's Q4 2025 Earnings Call: Contradictions Emerge on Caribbean Demand, Guidance, Capacity, and Fuel Costs

Date of Call: None provided

Financials Results

• Operating Margin: Operating and EBITDA margins up over 250 basis points year-over-year

Guidance:

• 2026 yield guidance: ~2.5% reported (≈3% when normalized for Carnival Rewards accounting and deployment changes).
• 2026 cruise costs ex-fuel per ALBD: +3.25% reported (≈2.5% normalized); includes ~0.5 pt from Celebration Key/RelaxAway and ~0.3 pt timing shift.
• 2026 net income > $3.45B (up >12% vs 2025) and EBITDA ≈ $7.6B.
• Q1 2026: yields ≈ +1.6% (2.4% normalized); Q1 costs ~+5.9% YOY.
• Carnival Rewards: -0.2 pts yield impact in 2026 (turns positive later years).
• Capital allocation: resume dividend $0.15/quarter; target net debt/EBITDA <3x (aim ~2.75x).

Business Commentary:

• Record Financial Performance:
• Carnival Corporation & plc reported a net income of $454 million for Q4 2025, which was nearly 2.5x the prior year and exceeded September guidance by $154 million or $0.11 per share.

• The performance was driven by favorable revenue, cruise costs without fuel, and strong close-in demand.

• Yield and Unit Cost Improvement:

• Full-year yields improved by 5.5% over last year, surpassing initial guidance by almost 1.5 points, and unit costs were better by 1 point.

• Successful commercial execution and cost management efforts mitigated inflation and higher dry dock expenses, leading to higher operating and EBITDA margins.

• Strategic Capital Allocation:

• The company's leverage ratio improved to 3.4x at year-end, allowing for the reinstatement of a dividend of $0.15 per quarter and plans to continue deleveraging to below 3x.

• This progress was achieved through successful refinancing efforts and strong operating performance.

• Caribbean Market Dynamics:

• The Caribbean experienced a 27% capacity increase in just two years, presenting challenges but also opportunities for Carnival's diverse global portfolio.
• Despite the increase in capacity, Carnival is confident in its ability to manage and thrive in this market, leveraging its diversified brand portfolio and effective cost management strategies.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted record results: "we delivered over $3 billion to the bottom line, a 60% increase over 2024" and Q4 net income of $454M "nearly 2.5x the prior year." Leadership announced dividend resumption and upgraded 2026 guidance (net income >$3.45B, EBITDA $7.6B), framing the outlook as confidence in sustainable cash generation and further growth.

Q&A:

• Question from Robin Farley (UBS): You noted Q4 acceleration in onboard spend and close-in demand—is that level assumed in 2026 guidance or is it upside? Also, where are you on Q1 bookings relative to typical (e.g., ~80% booked)?
  Response: Guidance reflects management's best current view incorporating booked business and momentum, but they treat continued onboard/close-in strength as possible upside; Q1 sailings are slightly ahead of last year with little inventory remaining.

• Question from Brandt Montour (Barclays): From a revenue-management perspective, have you traded volume for price (i.e., taken more volume at expense of pricing growth)? And how exposed are you to short Caribbean itineraries (3–4 day) in Q1 mix?
  Response: Revenue managers optimize per-brand/voyage to maximize total revenue; the company is executing thoughtful mix/pricing actions and participates across short and long Caribbean itineraries, with Carnival long-experienced in shorts.

• Question from Matthew Boss (JPMorgan): Can you elaborate on booking cadence into holiday, price levels in North America/Europe, whether stimulus or tariff lapping is in guidance, and whether 3% normalized yield requires current momentum?
  Response: Momentum through holidays is strong and prices are at historical highs; no stimulus baked into guidance, some lapping of prior volatility is included, and the 3% normalized yield is management's best estimate given current booked business and assumed market dynamics.

• Question from Matthew Boss (JPMorgan): What cost-mitigation is embedded in the 3.25% net cruise cost outlook?
  Response: Management embedded ~1.1 percentage points of cost mitigation from efficiency initiatives, sourcing and scale benefits to offset inflation.

• Question from Steven Wieczynski (Stifel): What are you seeing on Caribbean demand and ability to take pricing action there; will Caribbean yields be positive in 2026?
  Response: Company feels comfortable with its Caribbean positioning and expects Caribbean yields to contribute positively to 2026 momentum; they are managing pricing rationally and rely on portfolio diversity to absorb supply shifts.

• Question from Steven Wieczynski (Stifel): How should we think about cadence of yields and costs across the quarters for modeling?
  Response: Q1 costs are higher than full-year; the remaining three quarters should be below full-year cost increase, and yields are expected to show stronger year-over-year improvement in the back half of 2026 versus the first half.

• Question from Benjamin Chaiken (Mizuho Securities): How should we think about the OpEx vs CapEx allocation for dry docks and is the step-up in emissions allowances recurring?
  Response: The opex/capex split per dry-dock day can vary and the 2026 shift is relatively small in the context of total spend; emissions allowance step-up was due to moving to 100% coverage in 2026 and the step function is complete.

• Question from James Hardiman (Citi): Is the Q1 vs full-year delta (2.4% vs 3%) primarily due to heavier Caribbean mix in Q1, and do you feel better about Caribbean as year progresses?
  Response: Q1 comps are more difficult and impacted by Caribbean capacity mix and prior volatility; management feels constructive about the full-year outlook and expects to ride momentum through the year.

• Question from Elizabeth Dove (Goldman Sachs): What is driving same-ship yield growth given fewer new-ship launches—brand execution, new-to-cruise, etc.? And how is Celebration Key performing on ticket premium and onboard uplift?
  Response: Yield growth is driven by improved commercial execution (revenue management, marketing, clearer brand messaging) and value proposition; Celebration Key is performing in line with expectations—ticket premium and onboard metrics meet plans.

• Question from David Katz (Jefferies): How much fixed versus variable cost leverage exists to capture upside, and what are expected one-time and ongoing savings from DLC unification?
  Response: Most ship-level costs are largely fixed at full capacity, but shore-side and procurement efficiencies offer incremental leverage; unification is expected to save a few million upfront and a few million annually with payback under two years.

• Question from Jaime Katz (Morningstar): Are you seeing K-shaped demand by income or segments, and how will you manage occupancy vs price in 2026 with historically high prices?
  Response: No material segmentation differences observed—demand across contemporary/premium/luxury is resilient; brands are empowered to balance occupancy and price to maximize revenue and preserve guest experience.

• Question from Conor Cunningham (Melius Research): Why target sub-3x net debt/EBITDA and is there appetite to exceed near-term maturities reduction?
  Response: Targeting ~2.75x to secure a BBB rating and financial flexibility; they plan further deleveraging while maintaining capital for strategic priorities and opportunistic buybacks.

• Question from Sharon Zackfia (William Blair): What was marketing as a percent of sales in 2025, planned change for 2026, and how are you shifting digital/targeting approaches?
  Response: Marketing was roughly ~3.5% of revenue; they will reallocate and optimize spend (including AI and third-party tools) rather than materially increasing percent of sales, focusing on top-of-funnel reach and more efficient conversion.

Contradiction Point 1

Caribbean Demand and Yield Trends

It highlights differing perspectives on the expected performance of Caribbean demand and yields, which could impact revenue projections and investor expectations for the region.

What is your outlook for Caribbean demand and yields in 2026? - Steven Wieczynski (Stifel)

20251219-2025 Q4: We are managing the business as appropriate, without commenting on specific competitors. Caribbean yields will support business momentum, but we will reassess at year-end. - Josh Weinstein(CEO)

How will Carnival sustain pricing power and brand equity in the Caribbean against new competitor ships and itineraries? - Chris Stathoulopoulos (Susquehanna Financial Group)

2025Q3: We are competing against land alternatives, not other cruise lines. Our strategy involves investing in destination strategy, new classes of ships for Carnival, and continuous improvement in the Caribbean market. - Josh Weinstein(CEO)

Contradiction Point 2

Forward Guidance and Market Assumptions

It involves differing statements about the assumptions underlying the company's forward guidance, which could influence investor expectations regarding revenue and profitability.

Is the acceleration in onboard spend and close-in demand assumed to continue in your guidance, or does it represent upside potential? - Robin Farley (UBS)

20251219-2025 Q4: Our guidance is based on what we expect currently, considering the business we've got on the books. We always strive for momentum in onboard spending and close-in bookings. We don't assume these accelerations, but we continue to work on achieving them. - Josh Weinstein(CEO)

Can you link your programs to pricing trends and explain how we should view future pricing? - James Hardiman (Citigroup)

2025Q3: Our programs are improving yields across brands. AIDA's Evolution program is in its early innings, but the returns are significant. Celebration Key's premium on ticket prices is meeting expectations. We'll continue to invest in advertising, revenue management, and people to drive yields. - Josh Weinstein(CEO)

Contradiction Point 3

Caribbean Market Strategy and Capacity Increase

This contradiction highlights a shift in Carnival's strategy regarding capacity management and market positioning in the Caribbean, which could impact revenue and consumer demand.

What is your exposure to the short Caribbean market with increased capacity? - Brandt Montour (Barclays)

20251219-2025 Q4: We play in all markets, from short to longer durations. We have a diverse portfolio and leverage exciting programs, including European brands that go to Barbados and Dominica, to balance our exposure effectively. - Josh Weinstein(CEO)

Are there differences in booking behavior between onboard and consumer segments in Europe and the U.S.? - Ben Chaiken (Mizuho Securities)

2025Q1: We are disproportionately increasing our capacity in the Caribbean this year. As we said, in the Caribbean, we're up 15%. - Josh Weinstein(CEO)

Contradiction Point 4

Fuel Cost and Emission Allowances

It highlights different interpretations of fuel cost trajectory, which is crucial for financial planning and investor expectations.

How should we consider future fuel costs with the increased emission allowances? - Benjamin Chaiken (Mizuho Securities)

20251219-2025 Q4: The step function is complete at 100%. We expect fuel costs to grow in line with our budgeting. - David Bernstein(CFO)

Are there potential upside risks to the revised guidance for the second half of the year? - Steven Wieczynski (Stifel)

2025Q2: Our fuel prices for the year will be higher than guidance provided, driven by a significant increase in our fuel consumption and increased fuel costs. - David Bernstein(CFO)