Carnival Corp. (NYSE: CCL) reported its third-quarter financial results before Monday’s opening bell.
Below are the transcripts from the Q3 earnings call.
- CCL stock is trading lower. See the details here.
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OPERATOR
Greetings and welcome to the Carnival Corporation and PLC Q3 2025 earnings results, conference call and webcast. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad and we ask that you please ask one question, one follow up, then return to the queue. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Beth Roberts. Please go ahead Beth.
Beth Roberts
Thank you. Good morning and welcome to our third quarter 2025 earnings conference call. I’m joined today by our CEO Josh Weinstein, our CFO David Bernstein and our Chair Mickey Arison. Before we begin, please note that some of our remarks on this call will be forward looking. Therefore, I will refer you to today’s press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures including yields, cruise costs without fuel, EBITDA net income, ROIC and related statistics for all which are on a net basis or adjusted as defined unless otherwise stated. A reconciliation to US GAAP is included in our earnings press release and our investor presentation which are available on our corporate website. References to ticket prices, yields and cruise costs without fuel are in constant currency. Unless we know otherwise, please visit our corporate website where our earnings press release and investor presentation can be found. With that, I’d like to turn the call over to Josh.
Josh Weinstein (Chief Executive Officer)
Thanks Beth. This was a truly outstanding quarter with our business continuing to fire on all cylinders, outperforming and taking us to new heights once again. We delivered record revenues, yields, operating income, EBITDA and customer deposits this quarter. We also achieved all time high net income of $2 billion, surpassing our pre pause benchmark by nearly 10%. This is a significant milestone with strong operational execution more than compensating for a nearly 600% increase in net interest expense compared to 2019 on a unit basis. Both operating income and EBITDA reached the highest levels in the better part of 20 years. These record results were delivered on 2.5% lower capacity as compared to the third quarter last year. Yet another proof point on our successful delivery of same ship yield improvement and its marked impact on the bottom line. In fact, yields increased 4.6%, all of which was achieved on the same ship basis. Yields were also over a point better than Guidance again due to the strength in both close in demand and onboard spending. Unit costs beat Guidance by one and a half points on continued cost discipline. The outperformance on revenue and costs alongside our refinancing efforts enabled us to take up our full year guidance for the third time this year. These fantastic results and our team’s consistently strong execution delivered ROIC of 13% for the trailing 12 months. This is the first time since 2007, nearly 20 years ago, that returns have reached the teens, another clear testament to the fundamental improvements in our operational performance. Our leverage is now down another notch to 3.6 times net debt to EBITDA, closing in on investment grade leverage metrics. This positions us even closer to using our strong and growing free cash flow to not only continue to responsibly delever, but but also to return capital to shareholders. In fact, just today we called the remaining converts using $500 million of cash that David will touch upon to fuel this. Over the longer term, we believe we have much more opportunity to increase same ship yields and further close the unbelievable value gap to land based alternatives, pushing margins and returns even higher over time. In fact, booking trends have continued to improve since our last update, nicely outpacing capacity growth at higher prices and setting a record for bookings made on sailings. Two years out and with nearly half of 2026 already on the books at higher prices, we feel pretty good about next year. We just welcomed Star Princess into the fleet, sister to the highly successful Sun Princess, previously awarded Condé Nast’s 2024 Mega Ship of the Year, this new ship class will now represent over 15% of the princess fleet, a nice tailwind for the brand next year. Of course, we also have the full benefit of Celebration Key and the continued rollout of our destination development strategy as we progress through next year. Celebration Key is as phenomenal as we expected and open to rave reviews. I could not be prouder of both the Carnival Cruise Line and our destination development teams for not only getting this fantastic development done on time and on budget, but also delivering an amazing guest experience right from the start. Since our late July opening, nearly half a million Carnival Cruise Line guests have already passed through the sun-shaped arch in Paradise Plaza, soaking in the largest freshwater lagoon in the Caribbean, heading up to the top of the world’s largest sandcastle, zipping down our racing water slides or enjoying a cool cocktail at the world’s largest swim up bar. While early guest feedback from Celebration Key has been fantastic, we are paying close attention to our guest suggestions and will continue to fine tune operations and strive for continuous improvement to make the experience for our guests even better. As you may have seen the media coverage for our new destination has been overwhelmingly positive. Even before opening we were amongst the most searched cruise destinations and we have. Clearly built on that success. Our marketing teams have been working around the clock to make Celebration Key a household name. The grand opening alone generated almost one and a half billion media impressions and we’ve been activating a ton of live footage from the destination on social media and the like ever since. Celebration Key is sure to increase consideration amongst new to cruise while at the same time giving our repeat guests yet another reason to come back soon. In fact, we expect word of mouth will continue to build with 2.8 million guests visiting Celebration Key next year on 20 Carnival ships leaving from 12 different home ports. This adds up to high utilization rates with a ship in port virtually every day of the year and at least two ships 85% of the time. To that end, our pier extension is in progress and by next fall will accommodate up to four ships at a time, allowing us to maximize the utilization of our existing land capacity. And because I know I will get asked right off the bat, I’ll just say in the early innings. The returns of our Celebration Key investment are indeed meeting expectations, all of which were built into our forecast and which we have exceeded. Switching gears to another of our Caribbean gems Mid next year we will also open the pier expansion at Relax Away Half Moon Cay, our pristine Caribbean oasis. This spectacular tropical paradise, already ranked amongst the best private islands in the Caribbean, invites our guests to relax and enjoy our white sand crescent beach and and crystal clear turquoise waters. Once both piers are operating, one out of every five Carnival Cruise Line Caribbean itineraries will go to these perfectly paired destinations, providing guests with both the ultimate and the idyllic beach days all in one vacation. And overall, the vast majority of our Caribbean guests will enjoy one of our seven purpose built Caribbean gems, with half of those guests visiting more than one. As beaches are the number one destination for vacationing Americans, our miles upon miles of some of the most beautiful beaches in the world are the perfect fix. By making targeted incremental investments and stepping up our marketing efforts to support this broad destination portfolio, we believe we have further opportunity to monetize these strategic assets by using them to drive consumer consideration and conversion, taking share from land based alternatives. Altogether, our exclusive Caribbean destinations will capture over 8 million guest visits next year, almost equal to the rest of the cruise industry combined. And let’s not forget our strategic portfolio of brands and assets stretch far beyond the Caribbean. We have by far the most assets in and capacity dedicated to Alaska which has been incredibly strong this year, as well as the biggest reach into Europe which has likewise been performing incredibly well for us. Our portfolio of brands and land based assets are clearly the largest and most diverse in the industry and getting even better every day. While getting to 13% ROIC so quickly is a significant achievement, it’s certainly not a ceiling. We have been disciplined in deploying capital towards our highest returning brands with seven ships on order for Carnival and Aida combined. But keep in mind we have many other brands that are quickly progressing up the internal leaderboard. This year the overwhelming majority of capacity will be at brands delivering double digit returns. Yes, this is already well above our cost of capital, but our brands have much more room to significantly improve. In fact, several of our brands are not yet back to either 2019 levels or the record highs they’ve reached in the past two decades. So we know the latent potential they have. And even the two stars currently atop that internal leaderboard, Aida and Carnival Cruise Line have road maps to progress. Aida will continue to benefit from its hugely successful Evolutions program which coupled with new ship orders will modernize its current fleet. Next month Aida Luna will enter dry do the second of seven ships to receive this proven upgrade. Carnival will also be launching a fantastic new marketing campaign just ahead of wave season, an enhanced loyalty program mid next year and of course stands to disproportionately benefit from the step up we’re making in our Caribbean destinations given their large year round Caribbean presence. So while it is incredibly rewarding to see the great progress our teams have made in such a short amount of time, I am equally excited about the opportunities ahead as we create shareholder value through continued progress on profitability and returns. At the same time, further balance sheet improvement should continue. The transfer of enterprise value from bondholders back to shareholders. I would like to again thank our team members ship and shore for the dedication and execution of which enabled us to deliver happiness to nearly 4 million guests this past quarter by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sail, place we visit and life we touch. And special thanks to our travel agent partners, destination partners, investors and of course our loyal guests for their continuing support. With that, I’ll turn the call over to David.
David Bernstein (Chief Financial Officer)
Thank you Josh. I’ll start today with a summary of our 2025 third quarter results. Next I will provide some color on our improved full year September guidance as well as some key insights on our fourth quarter. Then I’ll provide you with a few things to consider for 2026 and finish up with an update on our efforts to rebuild our financial fortress through refinancing and deleveraging. Turning to the summary of our third quarter results, net income exceeded June guidance by $182 million or $0.13 per share as we outperformed once again and achieved our highest ever net income for the quarter. The outperformance was mainly driven by three things. First, favorability in revenue worth $0.04 per share as yields came in up 4.6% compared to the prior year and that was on top of last year’s robust increase of nearly 9%. This was 1.1 points better than June guidance driven by continued strong close in demand resulting in higher ticket prices and a continuation of strong onboard spending. The increase in yields was driven by improvements on both sides of the Atlantic. Second, cruise costs without fuel per available lower birthday or ALBD (available lower berth day) were up 5.5% compared to the prior year. This was 1.5 points better than June guidance and was worth $0.03 per share. The favorability was driven by cost saving initiatives which we firmed up during the quarter. These will flow through to our full year September guidance and third favorability and fuel consumption and fuel mix was worth $0.02 per share as our efforts and investments to continuously improve our energy efficiency of our operations, leveraging technology and best practices paid off once again. The balance of the favorability $0.04 per share was a combination of improved depreciation expense and better fuel prices as well as favorable interest income and expense. Customer deposits at the end of the quarter were at a record for the third quarter at 7.1 billion up over $300 million versus the prior year driven by higher ticket pricing and increased sales of pre cruise onboard revenue items. Next I will provide some color on our improved full year September guidance. Our net income guidance of approximately $2.9 billion or $2.14 per share is a $235 million or 17 cent per share improvement over our June guidance. The full year improvement of $0.17 per share was driven by three things. First, flowing the $0.13 per share third quarter favorability through to the full year. Second, an additional $0.03 per share fourth quarter interest expense favorability as the actions that impacted third quarter interest expense are also creating favorability in the fourth quarter quarter and third $0.01 per share from improved fourth quarter fuel prices. Yield guidance for the fourth quarter remained the same as the prior guidance. Cruise costs without fuel for the fourth quarter are flat with June guidance. However, our cruise costs for the fourth quarter did benefit from some of the cost savings we solidified during the third quarter but were offset by higher variable compensation driven by improved operating results. All of this Results in over $7 billion of EBITDA, a 15% improvement over 2024, virtually all of which is being driven by same ship yield improvement as our capacity is only up approximately 1% year over year. Now a few things for you to consider. For 2026 we are forecasting a capacity increase of just 0.8% compared to 2025. As Josh indicated, booking trends have continued to improve since our last update and we now have nearly half of 2026 on the books at higher prices. As we highlighted on our last call, Carnival Cruise Line’s new loyalty program Carnival Rewards will start in June 2026 and impacting results for the second half of the year. As a reminder, while the program will be cash flow positive from day one, it does impact our yields in 2026. The year over year impact is expected to be about half a point. It should also be noted that we do not anticipate any meaningful impact on costs from the new loyalty program when compared to the current program. Our game changing destination Celebration Quay, which opened in July 2025 has been delivering an amazing guest experience with a full year of operation in 2026 along with the mid-2026 opening of our new pier at Relax Away Half Moon Cay. We expect that the operating expenses for these destinations in 2026 will impact our overall year over year cost comparisons by about half a point. While it is still early in our planning process, we are expecting to do more work during our 2026 dry docks. The additional expenses will impact our overall year over year assumptions by up to 1 percentage point. Now I’ll finish up with an update of our refinancing and deleveraging efforts. During the quarter we continued our refinancing strategy to reduce interest expense and manage our maturity towers while also reducing secured debt by nearly $2.5 billion, leaving just 3.1 billion remaining. We issued two senior unsecured notes and completed one bank loan. The combined proceeds of 4.6 billion from these financings and together with cash on hand were used to repay over $5 billion of debt. Continuing our deleveraging efforts, we have been working aggressively all year long to delever as well as to simplify and strengthen our capital structure. Rebuilding our investment grade balance sheet Since January, we refinanced over $11 billion of debt at favorable rates and prepaid another $1 billion, accelerating our path to investment. GR Metrics we are pleased that our efforts have been recognized with the recent Moody’s credit rating upgrade and the maintenance of their positive outlook. Based on our September guidance, we are expecting to end the year with a marked improvement in our net debt to EBITDA ratio going from 4.3 times at the end of 2024 to 3.6 times at the end of 2025. Looking forward, we are targeting a net debt to EBITDA ratio of under three times. Given the progress we have made and while still a top priority, it is great to be able to say that debt reduction no longer has to be priority 1, 2 and 3. We can soon pivot to diverting some of that effort to returning capital to shareholders as well. In fact, just today we provided our Redemption notice for all of our outstanding convertible notes which if converted, will be settled using a combination of $500 million of cash and equity as we continue to rebuild our financial fortress. The Convert Redemption will be settled on December …