Carnival Corporation & plc Form 10-Q Summary
Business context and reporting period
This joint Form 10-Q covers Carnival Corporation and Carnival plc for the three months ended February 28, 2022, compared with the three months ended February 28, 2021. Carnival continued its phased return to cruise operations following the COVID-19-related pause that began in March 2020. As of February 28, 2022, 71% of capacity and eight of nine brands had resumed guest operations.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1.623 billion | $26 million | +$1.598 billion |
| Operating loss | $1.491 billion | $1.524 billion | Improved by $32 million |
| Net loss | $1.891 billion | $1.973 billion | Improved by $82 million |
| Diluted loss per share | $1.66 | $1.80 | Improved by $0.14 |
| Net cash used in operating activities | $1.212 billion | $1.503 billion | Improved by $291 million |
| Cash, cash equivalents and restricted cash | $6.452 billion | $9.829 billion | Decreased by $3.377 billion |
Passenger ticket revenue was $873 million and onboard and other revenue was $750 million. Passenger cruise days increased to 7.229 million from 27 thousand, available lower berth days increased to 13.322 million from 173 thousand, and occupancy was 54% versus 16%. The filing notes that the prior-year comparison was distorted by the near-total suspension of guest operations.
Total operating costs and expenses rose to $2.030 billion from $535 million. The increase reflected the restart of ships and crews, dry-dock activity, enhanced health and safety protocols, inflation and higher operating volumes. Fuel expense increased to $365 million from $103 million, driven by higher consumption and an increase in fuel cost per metric ton to $648 from $392.
Interest expense declined to $368 million from $398 million, primarily because of a lower average interest rate following refinancing activity. The company recognized an $8 million ship impairment charge in Q1 2022 and none in the comparable period.
Liquidity, debt and capital resources
- Liquidity was $7.2 billion at February 28, 2022, including cash, short-term investments and available revolving-facility borrowings.
- Cash and cash equivalents were $6.414 billion, and short-term investments were $515 million.
- Total debt principal was $35.721 billion, comprising $2.741 billion of short-term borrowings, $2.272 billion of current long-term debt and $30.708 billion of long-term debt.
- The company borrowed $2.3 billion under export credit facilities during the quarter and had $3.3 billion of undrawn export credit facilities for planned ship deliveries through 2024.
- Only $0.3 billion was available under the revolving facility at February 28, 2022.
- The company was in compliance with applicable debt covenants, including minimum liquidity of $1.5 billion and minimum shareholders’ equity of $5.0 billion.
- Working capital deficit increased to $2.9 billion from $0.3 billion, substantially because of lower cash. Customer deposits were $3.7 billion, including $3.4 billion classified within current liabilities.
Cash flow, investment and financing activity
- Operating activities used $1.212 billion of cash.
- Investing activities used $3.032 billion, including $2.730 billion of property and equipment purchases and $315 million of short-term investment purchases. Capital expenditures included $2.5 billion for new ships and $221 million for improvements, replacements, information technology and buildings.
- Financing activities provided $1.728 billion, principally from $2.347 billion of long-term debt issuance, partly offset by $503 million of debt repayments and $86 million of debt issuance costs and other items.
- Cash, cash equivalents and restricted cash decreased by $2.524 billion during the quarter.
- Remaining new-ship growth commitments totaled $7.080 billion, including $1.875 billion for the remainder of 2022 and $2.562 billion for 2023.
Material changes versus the prior comparable period
- Revenue rebounded sharply as more ships returned to service, but the company remained deeply unprofitable.
- Operating loss and net loss improved modestly despite substantially higher operating costs, reflecting the partial recovery in revenue.
- Occupancy remained well below historical levels at 54%, although it increased from the extremely limited operating base in Q1 2021.
- Debt increased, while cash declined materially because of operating cash burn, capital expenditures and other investments.
- The company completed or agreed to sell ships representing capacity reductions of 4,110 passengers in the North America and Australia segment and 1,410 passengers in the Europe and Asia segment.
- Share issuances generated $15 million of net proceeds, and the Stock Swap Program generated $2 million of net proceeds during the quarter.
Guidance, outlook, risks and unusual items
Management expected a net loss for the second quarter of 2022, a profit for the third quarter, and a net loss for full-year 2022. Management expected all brands to have their full fleets operating during their respective summer seasons, occupancy to improve through 2022 and return to historical levels in 2023, and revenue per passenger cruise day to exceed 2019 levels. These expectations depend on the continued return to service and other assumptions that remain uncertain.
COVID-19 continued to materially affect demand, operating costs, liquidity and financial condition. The invasion of Ukraine increased uncertainty and fuel-price exposure. Other principal risks include higher fuel and labor costs, supply-chain disruptions, foreign-currency volatility, climate-related regulation and costs, health and safety incidents, cybersecurity and data-privacy events, litigation, regulatory enforcement and difficulty executing shipbuilding or refurbishment programs.
The company stated that it expects restart-related costs to end in 2022 and not recur in 2023, although the filing cautions that forecasts are subject to significant uncertainty. The company plans to pursue refinancing and potential covenant amendments to reduce interest expense and extend maturities.
Material contingencies include litigation under the Helms-Burton Act relating to port operations in Cuba, with liability determined against Carnival in one matter after the quarter-end and damages scheduled for trial. The company also faces COVID-19-related claims and governmental investigations, cybersecurity-related regulatory matters, environmental compliance obligations and potential Clean Water Act penalties. Management does not currently expect the disclosed environmental matter to have a material effect on financial results.
Important facts for investors to verify
- Whether the return to service and occupancy improvement support management’s expectation of a third-quarter profit.
- Actual booking trends, pricing, cancellations, future cruise credits and customer-deposit cash refunds.
- Liquidity consumption, refinancing progress, debt maturities and compliance with financial covenants.
- The effect of fuel prices, the Ukraine conflict, inflation and enhanced health protocols on margins.
- Remaining capital commitments, new-ship financing and the timing of planned ship deliveries and removals.
- Potential financial exposure from the Cuban port litigation, COVID-19 claims, environmental matters and cybersecurity investigations.
- Whether ship impairments or other asset valuation charges recur as operating assumptions and market conditions change.