Q4 2024 Earnings Summary
- 1. Strong Yield Growth and Operational Improvements*: Carnival has achieved almost 10% yield growth on same ships over the prior year, driven by restructuring, getting the right leaders in place, and investments in marketing and revenue management tools. This significant organic improvement indicates substantial headroom for future growth. ,
- 2. Positive Outlook with Investment in Destinations and Onboard Spending*: The upcoming opening of Celebration Key in mid-2025 is expected to drive demand and onboard spending. Carnival is focusing on increasing pre-cruise spending, which opens up additional spending opportunities onboard, with significant runway to grow onboard revenue. ,
- 3. Improving Financial Position and Margin Expansion*: Carnival is on track to achieve investment-grade leverage metrics by 2026, targeting net debt to EBITDA of around 3.5x, through continued debt reduction and strong EBITDA growth. Additionally, yield improvements are expected to outpace cost increases, leading to margin expansion and stronger financial performance. , ,
- Potential Deceleration in Key Revenue Metric Growth: There are indications that per diems growth may slow down in 2025. Despite achieving over 5% increase in per diems in Q4 2024, the guidance for 2025 shows a yield increase of only 4.2%, which is lower than prior growth. Management did not provide a clear answer when asked about less robust pricing, suggesting possible concerns over sustaining pricing power.
- Elevated Leverage Levels Remain a Concern: Carnival's leverage ratio stands at 4.3x net debt-to-EBITDA, and while the company aims to reach investment-grade metrics of 3.5x, management acknowledged they do not have a target closer to 2x. This suggests that high debt levels may persist, potentially limiting financial flexibility and increasing financial risk.
- Uncertainty Over Cost Inflation and Efficiency Gains: The company expects cruise costs excluding fuel per ALBD to increase by 3.7% in 2025. Management admitted that the magnitude of efficiency initiatives is uncertain and that actual inflation could vary, stating, "There's only one thing I know about every forecast, it's wrong. I just don't know by how much and in what direction." This uncertainty could impact margins if costs rise more than expected.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Impact of Celebration Key on costs | FY 2025 | 0.5 percentage points | 0.5 percentage points | no change |
Yield growth | FY 2025 | no prior guidance | 4.2% | no prior guidance |
Celebration Key contribution (sailings) | FY 2025 | no prior guidance | 5% of total 2025 sailings | no prior guidance |
Cruise Costs Without Fuel per ALBD | FY 2025 | no prior guidance | +3.7% vs. 2024 | no prior guidance |
Net income | FY 2025 | no prior guidance | $2.3 billion | no prior guidance |
Fuel price & currency impact | FY 2025 | no prior guidance | +$0.04 per share | no prior guidance |
European Union Allowance (EUA) cost | FY 2025 | no prior guidance | +$0.03 per share | no prior guidance |
Debt callable | FY 2025 | no prior guidance | $3 billion | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Yield Growth & Pricing Power | Q3: +8.7% yields, strong pricing. Q2: +12%, exceeding guidance. Q1: +17%, citing robust demand. | Yields up 11% in 2024 with strong 4.2% guidance for 2025, driven by higher ticket prices and onboard spending. | Consistent theme with strong growth shifting from post-pandemic recovery to sustainable increases |
Cost Management & Efficiency Initiatives | Q3: ~$100M cost savings via port, crew, sourcing. Q2: $25M in savings, driven by broad-based efficiencies. Q1: Highlighted MASTS implementation. | Achieved unit costs 100 bps better than original guidance for 2024; 2025 costs to rise 3.7% but partially offset by efficiency. | Ongoing focus on extracting savings, leveraging scale to moderate inflation |
Deleveraging Efforts & Investment-Grade Credit | Q3: Top priority is debt reduction by 2026. Q2: Prepaid $1.6B of secured term loans. Q1: Retired higher-rate debt, removing second lien layer. | Repaid $5B in 2024, net debt/EBITDA at 4.3x; aiming for 3.5x for investment grade. | Steady progress toward lower leverage, focusing on balance sheet strength |
Booking Trends & Occupancy Levels | Q3: Historical norms for occupancy, strong Q4 and 2025 positions. Q2: Record future bookings, high occupancy in N. America and Europe. Q1: Record deposit levels. | 2025 volumes are at higher prices and occupancy; 2026 bookings at record levels, signaling continued demand. | Sustained momentum and record future bookings |
Brand Loyalty & Repeat Passenger Growth | Q3: Double-digit increases in both new and repeat. Q2: +10% repeat and +10% new. Q1: +9% repeat passenger growth. | Double-digit growth in new-to-cruise and repeat guests, citing strong marketing and demand creation. | Consistently rising loyalty; both new and repeat segments expanding |
Celebration Key Project | Q3: Opening July 2025, early premium demand. Q2: Targeting mid- to high-teens ROIC, ramping up in 2026. Q1: Incremental ticket/ onboard revenue expected. | Represents ~5% of 2025 sailings; $600M investment with higher premiums, bigger impact in 2026. | Emerging driver of future yield and brand differentiation |
Red Sea Rerouting | Q3: Not specifically mentioned. Q2: Not mentioned. Q1: Expected $130M impact for 2024, mostly Q2. | ~<$100M impact in 2024; no major 2025 bounce, now normalized. | Mention tapered off, with lower ongoing effects |
Competitor Discounting Pressures | Q3: No specific mention [—]. Q2: Some competitor discounting expected into Q4 and Q1 2025, but seen as non-disruptive. Q1: Not mentioned [—]. | No mention of competitor discounting in Q4 [—]. | No recent discussion, previously deemed minor |
Inflation & Uncertain Cost Forecasts | Q3: Inflation persists, offset by cost saves. Q2: No direct mention. Q1: Not specifically addressed [—]. | Assumed ~3% inflation in 2025 guidance; acknowledged forecasting challenges. | Continued caution around inflation but partially countered by efficiency |
Capital Expenditures & New Ship Investments | Q3: Order book full through 2028, focusing on debt reduction. Q2: Targeting mid- to high-teens returns on new builds. Q1: 1–2 ships/year from 2027, disciplined approach. | Investing in non-new-build projects (Celebration Key, Half Moon Cay), no major new ship orders beyond current book. | Balancing portfolio upgrades and minimal near-term newbuild expansions |
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Yield Guidance and Conservatism
Q: Is the 2025 yield guidance conservative given strong bookings?
A: Josh Weinstein acknowledged that while last year's outperformance was special, they are giving guidance based on what they know. They expect yields to increase by 4% in 2025, primarily driven by price rather than occupancy. He emphasized that they aim to optimize revenue and work hard to exceed expectations. -
Long-Term Targets and SEA Change
Q: Will you set new long-term financial targets after achieving SEA Change goals early?
A: Josh Weinstein indicated that once they reach their SEA Change targets, they plan to establish new long-term goals. He appreciates having longer-term targets to motivate the team and guide investors. They are close to achieving their ROIC target, needing about $100 million more in operating income, and acknowledged that the carbon reduction target will be more challenging. -
Debt Refinancing Impact on EPS
Q: Could debt refinancing significantly lower interest expense in 2025?
A: David Bernstein confirmed opportunities to refinance $3 billion in high-interest debt callable next year. While they included some savings in their forecast, successful refinancing could lower interest expense further, potentially providing upside to earnings. -
Booking Curve and Pricing Robustness
Q: Is pricing less robust compared to last year?
A: Josh Weinstein noted tougher comparisons but stated that brands are at higher occupancy and price points across all quarters. He believes they are in a more stable position and have given their view on yields accordingly. -
Cost Side and Efficiency Opportunities
Q: What could lead to better-than-expected cost performance?
A: David Bernstein highlighted ongoing efforts to find efficiencies and manage inflation, which they built into their guidance at less than 3%. He mentioned that while forecasting exact timing is challenging, they are constantly working to improve cost management, which could lead to better results. -
Mexico Passenger Charges Impact
Q: Will new Mexican passenger charges affect itineraries?
A: Josh Weinstein does not believe the proposed tax is a done deal and is engaging with the Mexican government to address concerns. If it were implemented starting July 2025, it would impact less than 5% of their itineraries, and they have not included any related costs in their forecast. -
Leverage and Investment-Grade Targets
Q: Is reaching 2x leverage a long-term goal?
A: Josh Weinstein stated that while they aim to achieve investment-grade metrics, specifically targeting 3.5x leverage, returning to a 2x level is not their current goal. They are focused on strengthening the balance sheet and will consider the appropriate level of leverage over time. -
Celebration Key's Impact on Yields
Q: How much does Celebration Key contribute to yield guidance?
A: Josh Weinstein explained that Celebration Key accounts for only 5% of total sailings in 2025, becoming more meaningful in 2026 at 15%+. While it's included in their guidance, the current impact on yields is limited, though they are seeing the expected premium in bookings. -
Wave Season Strategy
Q: How are you balancing 2025 bookings with future demand?
A: Josh Weinstein mentioned that they are actively selling cruises for 2025 and 2026, with record bookings for 2026. Each brand is approaching wave season differently, but they all use promotions to drive interest during this critical period while optimizing the booking curve. -
Red Sea Impact on 2025 Results
Q: How will the absence of Red Sea itineraries affect 2025?
A: Josh Weinstein noted that the prior year's Red Sea disruption cost them less than $100 million. For 2025, they proactively adjusted itineraries, selling cruises without Red Sea destinations. As a result, there won't be a significant bounce-back in 2025, and normalization is expected when comparing 2026 to 2025.