Carnival Corporation & plc Form 10-Q Summary
Business Context and Reporting Period
Carnival Corporation & plc operates global cruise brands through North America & Australia, Europe, Cruise Support, and Tour and Other segments. This unaudited joint Form 10-Q covers the quarter and six months ended May 31, 2024, compared with the corresponding 2023 periods. Results are seasonal, with the largest share of operating income typically earned during the third quarter.
Key Financial Metrics
| Metric | Three months ended May 31, 2024 | Three months ended May 31, 2023 | Six months ended May 31, 2024 | Six months ended May 31, 2023 |
|---|---|---|---|---|
| Revenue | $5.781 billion | $4.911 billion | $11.187 billion | $9.343 billion |
| Operating income (loss) | $560 million | $120 million | $836 million | $(52) million |
| Operating margin | 9.7% | 2.4% | 7.5% | (0.6)% |
| Net income (loss) | $92 million | $(407) million | $(123) million | $(1.100) billion |
| Net margin | 1.6% | (8.3)% | (1.1)% | (11.8)% |
| Diluted EPS | $0.07 | $(0.32) | $(0.10) | $(0.87) |
Passenger ticket revenue increased 20% year over year in the quarter and 23% for the six-month period. Onboard and other revenue increased 15% in both comparisons. Revenue growth reflected stronger demand and pricing, higher occupancy, and increased capacity.
- Quarterly occupancy increased to 104% from 98%; six-month occupancy increased to 103% from 95%.
- Available lower berth days increased 5.4% in the quarter and 4.8% for the six-month period.
- Quarterly passengers carried increased to 3.3 million from 3.0 million; six-month passengers increased to 6.3 million from 5.7 million.
- Six-month operating costs and expenses increased 11% to $7.5 billion, while selling and administrative expenses increased 11% to $1.6 billion.
- Interest expense declined 17% in the quarter to $450 million and 15% for the six-month period to $921 million, primarily due to lower debt and interest rates.
Cash Flow, Debt, and Liquidity
- Operating cash flow for the six months was $3.807 billion, compared with $1.525 billion in 2023, supported by stronger earnings, customer deposits, and the release of substantially all credit card reserves.
- Investing cash flow used $3.384 billion, including $3.457 billion of capital expenditures, primarily for delivery of new ships.
- Financing cash flow used $1.183 billion, including $4.072 billion of long-term debt repayments and $3.048 billion of new long-term debt issuance.
- Cash and cash equivalents were $1.646 billion at May 31, 2024, down from $2.415 billion at November 30, 2023. Cash, cash equivalents, and restricted cash totaled $1.669 billion.
- Total debt was $30.154 billion gross and $29.334 billion net of unamortized issuance costs and discounts. Long-term debt was $27.154 billion.
- Liquidity was approximately $4.6 billion, comprising $1.6 billion of cash and $3.0 billion available under the Revolving Facility. The existing facility matures in August 2024 and is expected to be replaced by a $2.5 billion facility available through August 2027.
- The company had $2.2 billion of undrawn export credit facilities for planned ship deliveries through 2027.
- Customer deposits increased to $7.883 billion from $6.072 billion, contributing to a working capital deficit of $9.6 billion. Management states that this deficit is inherent in the business because guests generally pay before sailing.
- The company was in compliance with applicable debt covenants at May 31, 2024, including minimum liquidity, interest coverage, leverage, and secured-debt requirements.
Material Changes Versus the Prior Comparable Period
- Quarterly operating income increased $440 million to $560 million, driven by higher revenue, occupancy, pricing, and capacity.
- Six-month operating income improved by $888 million to $836 million from a $52 million operating loss.
- Six-month net loss narrowed to $123 million from $1.100 billion.
- North America and Australia quarterly operating income increased to $525 million from $265 million; Europe improved to $168 million from a $27 million loss.
- Fuel cost per metric ton increased modestly in the quarter to $684 from $677, but six-month fuel price and consumption costs were $47 million lower than in 2023.
- Debt declined by $1.185 billion from November 30, 2023. During the period, the company prepaid approximately $3.2 billion of debt and issued $535 million of 5.8% senior unsecured notes due 2030 to help refinance higher-cost 2026 notes.
- In June 2024, Carnival announced that P&O Cruises Australia operations will be folded into Carnival Cruise Line in March 2025; management does not expect a material consolidated financial impact.
Outlook, Commentary, Risks, and Unusual Items
- The filing does not provide a clear quantitative earnings or revenue guidance range. Management highlights continued demand strength, but future results remain subject to seasonality and operating conditions.
- Management expects the global minimum tax rules could affect 2026 results. Before mitigation, the potential annual impact is estimated at approximately $200 million; the company is evaluating mitigating actions.
- The EU Emissions Trading Scheme became applicable January 1, 2024. Management expects an approximately $50 million impact in 2024; allowance purchases totaled $49 million at May 31, 2024, while expense recognized through the period was not material.
- Remaining unhedged euro-denominated newbuild commitments for non-euro functional-currency brands totaled approximately $2.1 billion through 2027.
- Key risks include substantial debt and refinancing needs, interest rates, fuel prices, foreign exchange, inflation, geopolitical events and travel demand, pandemics, ship incidents, climate regulation, environmental compliance, labor costs, supply-chain disruptions, competition, cybersecurity, and legal or regulatory proceedings.
- The Havana Docks litigation remains pending on appeal following a $110 million judgment plus $4 million of fees and costs. The filing does not indicate a clear ultimate financial outcome.
- Pending COVID-19-related class actions in Australia and Italy, environmental investigations, and other ordinary-course litigation are described as not expected to have a material impact, although adverse outcomes could still affect liquidity or results.
Important Facts for Investors to Verify
- Whether sustained demand, pricing, and occupancy gains continue after the seasonal third quarter.
- Progress in reducing and refinancing the approximately $30.2 billion gross debt balance and meeting future maturity obligations, including $8.7 billion scheduled for 2028.
- Replacement of the $3.0 billion Revolving Facility with the $2.5 billion New Revolving Facility in August 2024.
- Conversion of strong operating cash flow into durable free cash flow after elevated shipbuilding and capital expenditures.
- The actual financial effects of the global minimum tax, EU emissions regulation, fuel prices, foreign exchange, and climate-related requirements.
- Developments in the Havana Docks appeal and other litigation, environmental matters, and cybersecurity incidents.
- Execution and financial impact of the March 2025 P&O Cruises Australia realignment.