Carnival Corp Ltd. 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended May 31, 2007, and the six months ended on that date. Carnival Corporation & plc operates as a dual-listed company (DLC) with entities incorporated in Panama and England/Wales. The company is a large accelerated filer and operates primarily in the cruise industry, with a smaller segment for land-based tours and transportation.
Key Financial Metrics
| Metric | Six Months Ended May 31, 2007 | Six Months Ended May 31, 2006 | Three Months Ended May 31, 2007 | Three Months Ended May 31, 2006 |
|---|---|---|---|---|
| Total Revenues | $5,588 million | $5,125 million | $2,900 million | $2,662 million |
| Net Income | $673 million | $631 million | $390 million | $380 million |
| Diluted EPS | $0.83 | $0.77 | $0.48 | $0.46 |
| Operating Cash Flow | $2,091 million | $1,885 million | N/A | N/A |
| Net Cruise Revenue Yield | $168.21 per ALBD | $167.78 per ALBD | $172.90 per ALBD | $172.63 per ALBD |
| Net Cruise Cost per ALBD | $116.03 | $114.54 | $117.50 | $115.98 |
| Occupancy Rate | 103.9% | 104.8% | 103.7% | 105.4% |
| Fuel Cost per Metric Ton | $317 | $336 | $333 | $354 |
| Total Debt (Current + Long-Term) | $7,957 million | $7,847 million | N/A | N/A |
| Liquidity | $5.10 billion | N/A | N/A | N/A |
Note: Liquidity as of May 31, 2007, consisted of $2.07 billion in cash/investments, $1.51 billion in revolving credit availability, and $1.52 billion in committed ship financing.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 9.0% year-over-year for the six-month period, driven by an 8.3% increase in Available Lower Berth Days (ALBDs) due to new ship deliveries and a slight increase in net revenue yields.
- Profitability: Net income rose 6.7% to $673 million. Operating income increased to $812 million. The improvement was aided by a decrease in fuel costs ($19 per metric ton reduction) and higher onboard spending, partially offset by a weaker U.S. dollar impacting foreign operations.
- Costs: Net cruise costs per ALBD increased 1.3% primarily due to currency fluctuations and higher repair costs, though this was mitigated by lower fuel prices and reduced dry-dock costs.
- Capital Expenditures: Investing cash outflows increased significantly to $2.25 billion (from $1.48 billion), largely due to $1.89 billion spent on new shipbuilding programs (including final payments for Carnival Freedom, Emerald Princess, AIDAdiva, and Costa Serena).
- Dividends: The quarterly cash dividend was increased by 27% to $0.35 per share in April 2007.
Guidance, Outlook, and Risks
- Full Year 2007 Guidance: Management expects diluted earnings per share for the full fiscal year 2007 to be in the range of $2.85 to $2.95. This assumes a forward fuel price of $346 per metric ton and specific currency exchange rates ($1.33 to the euro, $1.97 to sterling).
- Capacity Outlook: ALBD capacity is expected to grow 9.6% in the third quarter of 2007 and 6.0% in the fourth quarter, driven by new ship entries. Future growth is projected at 9.3% (2008), 5.4% (2009), 6.7% (2010), and 6.4% (2011).
- Asset Sales: The company agreed to sell the QE2 for $100 million, expected to close in November 2008 with an approximate $10 million gain. The Pacific Star was sold and will be chartered back until March 2008.
- Risks and Contingencies:
- Litigation: A class-action lawsuit regarding copyright infringement of musical plays is pending; damages are indeterminable.
- Contingent Obligations: Approximately $1.06 billion in contingent obligations exist for lease-out transactions, though these are largely secured by financial institutions with AA+ ratings.
- Market Risks: Exposure to fuel price volatility, foreign currency exchange rates, and general economic conditions affecting discretionary income.
Investor Verification Checklist
- Fuel Price Sensitivity: Verify current forward fuel prices against the $346/ton assumption used in the full-year guidance.
- Currency Impact: Monitor the USD/Euro and USD/Sterling exchange rates, as a weaker dollar significantly boosts reported revenues and costs for European operations.
- Debt Maturities: Review the classification of $1.17 billion in convertible notes currently listed as current liabilities due to potential redemption options in April 2008.
- Ship Delivery Schedule: Confirm the on-time delivery and integration of new vessels (Carnival Freedom, Emerald Princess, AIDAdiva, Costa Serena) to validate capacity growth assumptions.
- Legal Exposure: Track developments in the Broadway copyright infringement lawsuit for potential material liability.