Carnival Corporation & plc 2019 Form 10-K Summary
Business context and reporting period
This joint Form 10-K covers Carnival Corporation and Carnival plc, which operate as a dual-listed single economic enterprise. The fiscal year ended November 30, 2019; the filing is an annual report rather than a standalone fourth-quarter report. Carnival is the world’s largest cruise company, operating 104 ships across North America, Australia, Europe and Asia through brands including Carnival Cruise Line, Princess Cruises, Holland America Line, Costa, AIDA, P&O Cruises, Cunard and Seabourn.
- 2019 cruise guests carried: approximately 12.9 million, compared with 12.4 million in 2018 and 12.1 million in 2017.
- Passenger capacity: approximately 248,790 lower berths at November 30, 2019, across 104 ships.
- Approximately 30% of revenue came from onboard and other activities outside the cruise ticket price.
- The company employed an average of approximately 92,000 shipboard employees and 14,000 shoreside employees, excluding employees on leave.
Financial metrics and liquidity
The filing states that selected financial data, management’s discussion and analysis, financial statements, cash flows, debt, liquidity and margins are incorporated by reference from Exhibit 13. The supplied filing text does not provide clear values for revenue, operating income, net income, earnings per share, cash flow from operations, capital expenditures, debt balances, cash balances, liquidity measures or operating margins.
- Management identifies significant operating cash flow as a source for capital improvements, debt maturities and dividends.
- The quarterly dividend was $0.50 per share, representing more than $1.4 billion of annual dividends.
- Since late 2015, the company repurchased approximately 100 million shares for $5.2 billion and paid approximately $5.2 billion in dividends.
- The company’s stated financial objectives are profitable growth, increased return on invested capital, a strong balance sheet and investment-grade credit ratings.
- The filing lists outstanding securities including 1.625% senior notes due 2021, 1.875% senior notes due 2022 and 1.000% senior notes due 2029, but the supplied text does not state the total debt outstanding or covenant headroom.
Material changes versus prior comparable periods
- Cruise guests increased approximately 3.7% from 2018 and 6.4% from 2017.
- Global cruise guests carried increased from approximately 28.5 million in 2018 to 30.1 million in 2019, while Carnival’s estimated share remained approximately 45%.
- Continental Europe guests increased to approximately 2.59 million from 2.34 million; guests from the United States and Canada increased to approximately 7.17 million from 6.79 million.
- Guests from Asia declined to approximately 1.11 million from 1.14 million, and guests from Australia and New Zealand declined to approximately 0.92 million from 1.02 million.
- Costa Venezia entered service in February 2019, and Sky Princess debuted in October 2019. Carnival Panorama was scheduled to enter service in December 2019.
- At year-end, 17 ships were under construction or contracted for delivery through 2025, including LNG-powered ships and capacity additions for Carnival, Princess, Costa, AIDA, P&O Cruises and other brands.
- The company enhanced its ethics and compliance framework in August 2019 and increased resources dedicated to compliance oversight.
Guidance, outlook, commentary, risks and unusual items
- Management estimated compound annual passenger-capacity growth of 5.0% for Carnival from 2019 through 2023, compared with an estimated 6.8% for the global cruise industry.
- Approximately 5.0% of total capacity was expected to be home ported in China during 2020. Management identified China and broader Asia as important long-term growth opportunities but acknowledged that these markets may not develop as expected.
- The company expected higher fuel costs in 2020 because of the International Maritime Organization’s global 0.5% sulfur cap and increased use of low-sulfur fuel. LNG infrastructure was described as being at an early stage with limited suppliers.
- Carnival had 47 ships capable of using shore power and was expanding LNG-powered capacity. Ten additional next-generation LNG ships were on order as of the filing.
- The company remains subject to a court-ordered environmental compliance plan, additional reporting and oversight, and potential further fines or operating restrictions following a previously disclosed settlement concerning environmental compliance violations.
- Key risks include travel demand disruptions, health and safety incidents, adverse weather and natural disasters, environmental and maritime regulation, data security and privacy, labor availability, fuel prices, foreign exchange, competition, overcapacity, expansion-market execution and shipyard delays.
- Legal matters disclosed include an environmental compliance proceeding, an appealed French sulfur-emissions case, an investigation involving an inadvertent food-waste discharge near the Great Barrier Reef, and a shareholder derivative complaint against Carnival plc directors.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of November 30, 2019, and the independent auditor also audited internal control effectiveness.
Most important facts for investors to verify
- Verify the incorporated Exhibit 13 for 2019 versus 2018 revenue, net income, adjusted earnings, operating cash flow, capital expenditures, debt, cash and liquidity.
- Reconcile the dividend and repurchase program with free cash flow, debt maturities and the company’s investment-grade credit objectives.
- Assess the financial effect of higher sulfur-compliance fuel costs, LNG adoption and related capital expenditures.
- Review the environmental compliance plan, remaining obligations, potential penalties and the status of disclosed legal proceedings.
- Evaluate booking trends, pricing, occupancy, net revenue yields and capacity growth, particularly in China and other Asian markets.
- Assess execution risk associated with 17 contracted newbuilds, delivery timing, shipyard dependencies and potential overcapacity.
- Review exposure to travel disruptions, health events, environmental incidents, cybersecurity breaches, foreign exchange and adverse weather.