By Callum Keown

Carnival's first-quarter earnings will both offer a look at the health of the cruise sector and provide clues about the outlook for the U.S. economy.

Analysts are expecting earnings of two cents per share on sales of $5.75 billion in the three months to the end of February. The consensus call among those surveyed by FactSet is that management will forecast EPS of 23 cents on sales of $6.2 billion for the current quarter, the second in the cruise operator's fiscal year.

But the broader market will be looking for any signs that consumers are pulling back on travel spending, particularly after recent warnings from major U.S. airlines. Any such evidence is likely to come in Carnival's financial guidance or commentary about the outlook.

But it may not materialize at all. J.P. Morgan analysts upgraded Norwegian Cruise Line Holdings to a Buy rating earlier this week because management reiterated there has been no change in demand whatsoever.

However, Truist analyst Patrick Scholes said a slowdown in travel, including the cruise sector, has been happening since early February. "Beginning in mid-February we observed a noticeable deceleration in the industry-wide [year-over-year] booking pace vs. comparable paces in December and January," he said in a note last week. Increases in prices haven't slowed down, Scholes said.

He maintained a Hold rating on Carnival and Buy ratings on Norwegian and Royal Caribbean.

Travel stocks have been hammered recently as investors have worried that uncertainty about the economy, specifically the effects of President Donald Trump's tariffs and cuts to federal employment, will lead to weakness in demand. Companies have begun to factor weaker demand into their financial forecasts.

Delta Air Lines was the first to raise the alarm, warning that consumer and corporate confidence has been dented in the first quarter. American Airlines and Southwest Airlines trimmed their financial guidance, while United Airlines said it expects earnings to come in at the lower end of the range it had forecast.

Delta, United and American stocks have fallen by around 30%, or a bit less, over the past month. Carnival is down 19% over the same period, while Norwegian Cruise has dropped 26% and Royal Caribbean is 19% lower.

If Carnival communicates that it has seen no sign of weakening demand, that could be because of the strength of the cruise industry, rather than an indication that consumers are proving to be more resilient than feared. In a recent research note J.P. Morgan analysts explained Norwegian's Chief Financial Officer Mark Kempa's reasoning for cruise demand staying resilient. Kempa said that cruise operators offer better value for money and a better experience than land-based alternatives, so they are often more robust in tough times.

That means that if even Carnival is facing a pullback by consumers, it would be bad news for the U.S. economy.

Write to Callum Keown at callum.keown@barrons.com

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March 20, 2025 17:22 ET (21:22 GMT)

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