Carnival Corporation & plc — Form 10-Q Summary
Business Context and Reporting Period
Joint quarterly filing for Carnival Corporation and Carnival plc for the three and six months ended May 31, 2022, filed June 29, 2022. The cruise business was continuing its post-COVID-19 restart; 86% of fleet capacity was operating with guests at quarter-end, compared with 6% a year earlier.
Financial Performance and Position
| Metric | Three months ended May 31, 2022 | Six months ended May 31, 2022 |
|---|---|---|
| Revenue | $2.401 billion | $4.024 billion |
| Operating loss | $1.473 billion | $2.964 billion |
| Net loss | $1.834 billion | $3.726 billion |
| Basic and diluted loss per share | $1.61 | $3.27 |
| Operating margin | (61.3%) | (73.7%) |
| Net margin | (76.4%) | (92.6%) |
Revenue consisted of $1.285 billion of passenger ticket revenue and $1.116 billion of onboard and other revenue in the quarter. Occupancy was 69% for the quarter and 62% for the six-month period; North America occupancy was 79% and 70%, respectively, while Europe and Asia occupancy was 53% and 50%.
Operating costs and expenses were $2.683 billion in the quarter and $4.713 billion for six months. Six-month fuel expense was $910 million, with fuel cost averaging $765 per metric ton, compared with $428 per metric ton in the prior-year period. Interest expense was $370 million in the quarter and $738 million for six months.
At May 31, 2022, cash and cash equivalents were $7.054 billion, short-term investments were $151 million, and stated total liquidity was approximately $7.5 billion, including available revolving-facility borrowings. Working capital was negative $4.8 billion, largely reflecting advance customer deposits and current debt maturities.
Total debt was $35.925 billion, including $2.675 billion of short-term borrowings, $3.196 billion of current long-term debt and $29.263 billion of long-term debt. The company issued $1.0 billion of 10.5% senior unsecured notes due 2030 and borrowed $2.3 billion under export credit facilities during the six months. Only approximately $0.3 billion remained available under the revolving facility at May 31, 2022.
Operating cash flow was negative $1.209 billion for the six months, compared with negative $2.862 billion in the prior-year period. Investing cash flow was negative $3.107 billion, including $3.221 billion of property and equipment purchases. Financing cash flow was positive $2.463 billion, principally from long-term debt issuance. Cash, cash equivalents and restricted cash declined to $7.089 billion from $8.976 billion at November 30, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue increased by $2.351 billion in the quarter and $3.949 billion for six months, primarily because substantially more ships resumed operations.
- Occupancy improved from 31% to 69% in the quarter and from 27% to 62% for six months, but remained below normal operating levels.
- Operating loss improved by $143 million in the quarter and $175 million for six months, despite the significant increase in revenue; the company remained deeply unprofitable.
- Operating expenses increased by $2.002 billion in the quarter and $3.497 billion for six months, reflecting restart costs, crew mobilization, health protocols, dry-dock activity, inflation and supply-chain disruptions.
- Fuel expense increased by $432 million in the quarter and $694 million for six months due to higher consumption and substantially higher fuel prices.
- Customer deposits increased to approximately $5.1 billion from $3.5 billion at November 30, 2021, supporting liquidity but also representing potential refund or rebooking obligations.
- Shareholders’ equity declined to $8.260 billion from $12.144 billion, primarily because of the six-month net loss and foreign-currency translation losses.
Guidance, Outlook, Risks and Unusual Items
Management expected a net loss for the third quarter of 2022 and continued to expect a net loss for full-year 2022. Its liquidity forecast assumes continued fleet reactivation, improving occupancy, higher per-passenger revenue, moderation in fuel prices beginning in the second half of 2022, and continued access to capital markets.
Management concluded that available liquidity was sufficient to satisfy obligations for at least the next twelve months, but emphasized that the forecast is subject to substantial uncertainty. The company planned to pursue additional capital-market transactions to extend maturities and, if necessary, amend financial covenants.
- COVID-19 effects, travel restrictions, staffing constraints and health protocols could delay the return to profitability and limit occupancy.
- Inflation, fuel prices, supply-chain disruptions, geopolitical events, including the invasion of Ukraine, and foreign-exchange movements could pressure demand, costs and margins.
- Debt maturities were substantial, including scheduled principal payments of $4.705 billion in 2024, $4.415 billion in 2025 and $4.512 billion in 2026.
- Debt covenants require minimum liquidity of $1.5 billion, minimum shareholders’ equity of $5.0 billion and future interest-coverage and leverage compliance. The company reported compliance at May 31, 2022.
- New ship commitments totaled approximately $6.492 billion through 2025, while $3.1 billion of export credit facilities remained undrawn for planned deliveries through 2024.
- Unhedged euro-denominated newbuild commitments through 2025 totaled approximately $5.6 billion, creating foreign-currency exposure.
- A federal court granted summary judgment on liability in the Havana Docks Cuban-property litigation; damages were scheduled for determination at trial. Management continued to believe a material financial impact was unlikely.
- The filing disclosed ongoing COVID-19 litigation, governmental inquiries, cybersecurity matters and a potential Clean Water Act matter. The company stated that the expected impact of the disclosed regulatory settlements and environmental matter was not material.
Investor Verification Checklist
- Verify the pace of fleet reactivation, occupancy recovery and the timing of a return to positive operating and free cash flow.
- Reconcile the approximately $7.5 billion liquidity figure with cash, short-term investments, revolving availability, collateral requirements and potential customer refunds.
- Review debt maturities, floating-rate exposure, covenant thresholds and the company’s ability to refinance or extend maturities.
- Assess the sensitivity of earnings and liquidity to fuel prices, inflation, staffing costs, supply-chain disruptions and foreign-exchange movements.
- Monitor customer-deposit trends, future cruise credits, cancellation activity and credit-card processor reserve requirements.
- Track newbuild capital commitments and whether ship deliveries, financing availability or potential impairments change.
- Follow the Havana Docks litigation, COVID-19 claims, governmental investigations, environmental matters and cybersecurity developments.