Carnival Corporation & plc: Q3 2023 Form 10-Q Summary
Business context and reporting period
This joint Form 10-Q covers Carnival Corporation and Carnival plc for the three and nine months ended August 31, 2023. Results reflect the continued recovery of cruise operations, with the full fleet serving guests at quarter-end versus 93% in the prior-year quarter. The third quarter is seasonally the company’s strongest period because of Northern Hemisphere summer demand.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.854 billion | $4.305 billion | $16.197 billion | $8.329 billion |
| Operating income (loss) | $1.624 billion | $(279) million | $1.572 billion | $(3.244) billion |
| Operating margin | 23.7% | (6.5%) | 9.7% | (39.0%) |
| Net income (loss) | $1.074 billion | $(770) million | $(26) million | $(4.495) billion |
| Net margin | 15.7% | (17.9%) | (0.2%) | (54.0%) |
| Diluted EPS | $0.79 | $(0.65) | $(0.02) | $(3.89) |
| Net cash from operating activities | Not separately disclosed for the quarter | Not separately disclosed for the quarter | $3.359 billion | $(1.553) billion |
Revenue increased 59% year over year in the quarter and 94% for the nine-month period. Passenger ticket revenue was $4.546 billion in the quarter, while onboard and other revenue was $2.308 billion. Occupancy increased to 109% in the quarter from 84% and to 100% for the nine-month period from 71%.
Quarterly operating expenses were $5.230 billion, including $468 million of fuel expense, $713 million of selling and administrative expense, and $596 million of depreciation and amortization. Fuel expense declined $199 million year over year, primarily because of lower fuel prices and changes in fuel mix, partly offset by higher consumption.
Interest expense increased to $518 million in the quarter and $1.600 billion for the nine-month period, reflecting higher average interest rates. Debt extinguishment and modification costs were $81 million in the quarter and $112 million year to date.
Liquidity, debt and capital resources
- Cash and cash equivalents were $2.842 billion at August 31, 2023, compared with $4.029 billion at November 30, 2022. Total cash, cash equivalents and restricted cash were $2.870 billion.
- Total debt was $32.093 billion before unamortized debt issuance costs and discounts, and $31.296 billion after those items. Long-term debt was $29.516 billion.
- The company reported $5.7 billion of liquidity, consisting of cash and cash equivalents and available borrowings under its revolving facilities. Approximately $2.9 billion was available under the existing Revolving Facility.
- The existing Revolving Facility matures in August 2024. A new $2.1 billion multi-currency facility may be utilized beginning August 6, 2024, subject to its terms.
- Working capital deficit was $6.3 billion, compared with $3.1 billion at November 30, 2022. Customer deposits were $6.3 billion, including approximately $160 million of unredeemed future cruise credits.
- The company was in compliance with applicable debt covenants at August 31, 2023 and stated that it expects sufficient liquidity and covenant compliance for at least the next twelve months.
Cash flow and investing activity
- Operating activities generated $3.359 billion during the first nine months, versus $1.553 billion of cash used in the prior-year period. The improvement reflected the return to profitability and higher customer deposits.
- Investing activities used $2.322 billion, including $2.609 billion of property and equipment purchases and $260 million of ship-sale proceeds.
- Financing activities used $4.229 billion, principally reflecting $6.828 billion of long-term debt repayments, partly offset by $2.961 billion of new long-term debt issuance.
- New ship growth capital commitments totaled $3.645 billion, including $267 million for the remainder of 2023, $2.422 billion in 2024 and $957 million in 2025.
Material changes versus the prior comparable periods
- North America revenue increased to $4.566 billion in Q3 from $2.880 billion, and operating income improved to $1.107 billion from a $126 million loss.
- Europe revenue increased to $2.060 billion from $1.266 billion, and operating income improved to $569 million from a $62 million loss.
- Passenger cruise days increased to 25.8 million from 17.7 million, available lower berth days increased to 23.7 million from 21.0 million, and passengers carried increased to 3.6 million from 2.6 million.
- Debt decreased from $35.615 billion at November 30, 2022 to $32.093 billion at August 31, 2023, before issuance costs and discounts. The company refinanced certain secured borrowings, issued $500 million of 7.0% senior secured notes due 2029, and borrowed $1.3 billion under a new secured term loan facility due 2027.
- The company redeemed or retired several higher-cost debt instruments and paid $81 million of related quarterly extinguishment and modification costs.
- During the quarter, $912 million of previously provided credit-card reserve funds were returned, and $413 million of restricted cash deposits became unrestricted.
Guidance, outlook, commentary and risks
The filing does not provide a clear numerical earnings or revenue guidance figure. Management expects to continue refinancing future maturities, reducing interest expense where possible, extending maturities and seeking covenant amendments or waivers if needed. Management plans to fund capital requirements through existing liquidity, future operating cash flow and export credit facilities.
- Key uncertainties include inflation, higher interest rates, fuel prices, taxes, foreign-exchange movements, geopolitical events, pandemics, travel demand and competition.
- Climate-related regulation, emissions requirements and the cost of meeting sustainability goals may negatively affect future results.
- Cybersecurity incidents, data privacy breaches, labor availability and costs, supply-chain disruptions, shipbuilding execution and adverse weather could affect operations and reputation.
- The company has substantial leverage and requires significant cash generation to service debt and sustain operations. Debt agreements contain liquidity, leverage, interest-coverage and other restrictive covenants.
- Unhedged euro-denominated newbuild commitments totaled approximately $3.2 billion for ships scheduled for delivery through 2025.
- The Havana Docks litigation resulted in a $114 million judgment, including fees and costs; Carnival has appealed. The filing also describes regulatory matters, environmental inquiries and remaining COVID-19-related class actions, which management does not expect to have a material impact based on current assessments.
- An impairment of $19 million was recognized on the Adora Cruises investment during the quarter. No goodwill or trademark impairment was identified in the annual review.
Most important facts for investors to verify
- Whether the recovery in occupancy, pricing and onboard spending remains durable after the seasonally strong third quarter.
- Future operating cash flow relative to scheduled debt maturities of $462 million in the remainder of 2023, $2.046 billion in 2024, $2.211 billion in 2025 and $3.194 billion in 2026.
- Availability and terms of the replacement revolving facility when the existing facility matures in August 2024.
- Interest-rate exposure, refinancing costs and compliance with interest-coverage, leverage and minimum-liquidity covenants.
- Execution of the $3.645 billion newbuild capital program and the company’s ability to fund remaining commitments.
- Potential outcomes of the Havana Docks appeal, environmental proceedings, cyber incidents and other litigation or regulatory matters.
- The extent to which customer deposits and future cruise credits support liquidity, including potential refund and redemption requirements.