By Callum Keown

Cruise stocks have rebounded recently but Carnival's earnings Tuesday could signal whether choppy waters lie ahead.

Investors in the sector have had plenty to navigate this year and the Israel-Iran war adds another worry to the list. Carnival is the first cruise operator to report, and is expected to address disruption in the Middle East and the impact of rising fuel prices.

Still, the market may be more keen to hear an update on travel demand.

In March, Carnival delivered strong first-quarter earnings and even hiked its full-year profit outlook. But the stock market was far more concerned that demand was softening, and Carnival shares plunged 48% -- from around $29 to $15 between Jan. 31 and April 7. They have since climbed back up to $24.

Shares of Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings have been volatile in recent weeks as they reacted to oil price moves, but all three stocks are up at least 7% over the past month.

In its fiscal second quarter, analysts expect Carnival to report earnings of 25 cents per share on sales of $6.21 billion, according to a FactSet consensus of estimates. That would mark a 7% revenue jump from the second quarter of 2024, which was a bumper year for the sector.

Fuel costs will be a metric to watch for investors. For context, Carnival guided for full-year fuel expenses of $1.88 billion when it reported first-quarter earnings in March.

Rising fuel prices "could limit the prospects of an upgrade to this year's profit guidance," Hargreaves Lansdown analyst Derren Nathan said in a note last week.

UBS analyst Robin Farley said Friday that as of June 18 fuel prices were lower than Carnival's guide, estimating that it would add 8 cents to the bank's full-year earnings estimate of $1.83. She has a Buy rating on the stock with a $30 price target.

Mizuho analysts said fuel was likely a $10 million to $13 million tailwind in the second quarter but lowered their earnings estimates for a different, perhaps more concerning reason last week.

"We move our overall estimates lower to account for what was likely a softer booking period in April given significant market volatility, presumably not captured in the original Carnival guide," analyst Ben Chaiken said. He still has an Outperform rating on the stock with a $33 price target.

So, while fuel prices and Middle East tensions provide a near-term distraction, demand remains the most important factor for the cruise sector.

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

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June 23, 2025 16:30 ET (20:30 GMT)

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