Will High Dry Dock & Regulatory Costs Weigh On CCL's Earnings Growth?

Carnival Corporation & plc CCL enters fiscal 2026 with cost pressures expected to remain a key factor shaping its earnings trajectory, particularly from higher dry dock expenses and incremental regulatory costs. Management has guided for cruise costs, excluding fuel per available lower berth day, to increase approximately 3.25% year over year, or about 2.5% on a normalized basis. This follows relatively measured cost growth in fiscal 2025, where unit costs rose around 2.6%, supported by efficiency initiatives that helped mitigate inflation and other operating pressures.

Dry dock activity is expected to be a meaningful contributor to the projected cost increase. The company plans for 604 dry dock days in fiscal 2026, with a larger portion of associated spending classified as operating expense rather than capital expenditure. While total dry dock spending is expected to remain broadly consistent with fiscal 2025 levels, this change in classification will impact year-over-year cost comparisons. Management indicated that dry dock-related expenses account for approximately 0.6 percentage points of the normalized cost increase.

Regulatory costs are also expected to contribute to the cost outlook. The company highlighted incremental expenses related to emission allowances as well as higher income taxes associated with global minimum tax frameworks. These factors are projected to impact fiscal 2026 earnings by approximately $0.11 per share, reflecting both the step-up to full emission allowance requirements and changes in tax structures.

At the same time, Carnival continues to emphasize cost mitigation initiatives and operational efficiencies. Management expects approximately 1.1% in cost mitigation from efficiency measures and scale benefits, which are intended to partially offset inflation and other expense drivers. Additional support is expected from lower net interest expense, along with favorable fuel and currency dynamics, supporting earnings.

For fiscal 2026, Carnival is guiding for net income of more than $3.45 billion, representing an increase of over 12% year over year, alongside continued yield growth of approximately 2.5% to 3%. The company’s outlook incorporates both the anticipated cost increases and the associated mitigation efforts in its guidance. Based on current guidance, while these cost pressures are expected to increase the expense base, they are not anticipated to prevent earnings growth in fiscal 2026.

CCL’s Price Performance, Valuation & Estimates

Shares of Carnival have declined 17.1% in the past three months compared with the industry’s fall of 10.4%. In the same time frame, other industry players like Royal Caribbean Cruises Ltd. RCL and Norwegian Cruise Line Holdings Ltd. NCLH have lost 4.3% and 13.8%, respectively, while OneSpaWorld Holdings Limited OSW has gained 7.4%.

CCL Stock’s Three-Month Price Performance

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CCL stock is currently trading at a discount. It is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 10.18, well below the industry average of 15.36. Conversely, industry players, such as Royal Caribbean, Norwegian Cruise and OneSpaWorld have P/E ratios of 14.64, 8.18 and 19.83, respectively.

CCL’s P/E Ratio (Forward 12-Month) vs. Industry

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The Zacks Consensus Estimate for Carnival’s fiscal 2026 earnings per share has declined in the past 30 days.

EPS Trend of CCL Stock

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The company is likely to report solid earnings, with projections indicating a 7.6% rise in fiscal 2026. Conversely, industry players like Royal Caribbean, Norwegian Cruise and OneSpaWorld are likely to witness a rise of 15.7%, 11.4% and 13.1%, respectively, year over year in 2026 earnings.

CCL stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Carnival Corporation (CCL): Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report

Norwegian Cruise Line Holdings Ltd. (NCLH): Free Stock Analysis Report

OneSpaWorld Holdings Limited (OSW): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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