Carnival’s Q3 2025 Earnings Preview: Can Strong Demand and Celebration Key Drive Valuation Higher?

TradingKey - Fueled by robust consumer demand for cruise travel, Carnival has hit all-time highs in several key metrics, including revenue, yield, and customer deposits. Its stock has performed strongly in 2025, with a year-to-date gain exceeding 20% and a nearly 70% increase over the past 12 months. However, entering the third quarter, the stock entered a consolidation phase, declining 3.6% in the month leading up to the earnings report, while the S&P 500 rose 3.1% over the same period. This may reflect cautious profit-taking by some investors weighing strong demand and successful deleveraging against the projected significant rise in operating costs.

After digesting the positive second-quarter results, the market has become more cautious in assessing growth sustainability. Despite Carnival’s consistently strong operational performance, investors are pricing in factors such as balance sheet health, certainty of long-term growth momentum, and capital expenditure risks. Carnival’s valuation discount compared to its industry peers and competitors may stem from its highest absolute debt levels in the sector and the execution risks and upfront costs associated with its “Celebration Key” private resort project.

As such, the upcoming third-quarter earnings report will be critical in testing Carnival’s ability to manage large-scale project costs while demonstrating future value creation. Strong execution could serve as a key catalyst to narrow the valuation gap.

Key Metrics to Watch

Revenue: The market forecasts Carnival’s third-quarter 2025 revenue to range between $8.07 billion and $8.13 billion, reflecting a year-over-year increase of 2% to 3%. Ticket revenue is expected to be between $5.23 billion and $5.31 billion, while onboard spending and other high-margin revenue are projected to reach $2.53 billion to $2.71 billion. Given the significant growth achieved in Q3 2024, the focus this quarter is on whether Carnival can sustain its record performance rather than the pace of growth.

Earnings Per Share (EPS): The market expects an EPS of $1.31 for the quarter, up approximately 4% year-over-year. It will be critical to determine whether EPS growth is driven by robust revenue increases or influenced by adjustments in expense recognition timing or other non-operational factors.

Booking Deposits: As of the end of Q2, Carnival’s customer deposits reached a record $8.5 billion. For the 2025 fiscal year, 93% of sailings are already booked at historically high prices. More notably, 2026 bookings have matched the high levels of 2025 at the same point, with even higher pricing. Strong consumer demand underpins the company’s optimistic outlook, and confirmation of this trend in Q3 will be key.

Profit Margin: A core focus of this earnings report is the profit margin, which reflects the balance between revenue growth and cost control. The new “Celebration Key” destination is expected to drive higher ticket prices and onboard spending through unique experiences, boosting revenue. However, management has guided for a 7% year-over-year increase in non-fuel unit costs in Q3, above the full-year expectation of 3.6%, driven by startup costs, increased marketing expenses, and reduced capacity. Investors will focus on whether Celebration Key’s high-margin revenue can offset cost pressures to maintain profitability.

Debt: Carnival’s balance sheet has improved significantly, with total debt reduced to $27.3 billion by the end of Q2, and the net debt-to-adjusted EBITDA ratio improved from 4.1x to 3.7x. The company prepaid $350 million in high-interest debt and refinanced other loans at favorable rates, aiming to regain investment-grade credit status. S&P and Fitch have upgraded Carnival’s rating to BB+, one step below investment grade. Continued debt reduction in Q3 will be a key point of focus.

Summary

Carnival is at a strategic inflection point, successfully recovering while executing a long-term value creation strategy. Bullish Case: Strong demand drives record-high bookings and pricing, deleveraging strengthens the balance sheet, and Celebration Key enhances revenue and margins. Bearish Case: Project costs and execution risks for Celebration Key, potential normalization of demand, and macroeconomic uncertainties.

Post-Earnings Scenarios:

· Bullish: EPS and revenue exceed expectations, margins expand, and strong Q4 and 2026 guidance drive a breakout from consolidation, narrowing the valuation gap.

· Neutral: EPS beats expectations but margins remain flat, with positive but non-quantified guidance, leading to continued stock price consolidation.

· Bearish: EPS misses expectations or relies on one-time items, cost pressures persist, and 2026 bookings slow, triggering a significant stock pullback.

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