Carnival Corporation & plc — Q3 2009 Form 10-Q Summary
Business context and reporting period
Joint quarterly report for Carnival Corporation and Carnival plc, which operate as a dual-listed company and a single economic enterprise. The filing covers the three and nine months ended August 31, 2009, filed October 1, 2009. Results are seasonal, with the third quarter typically generating the largest share of annual earnings.
Financial performance and key metrics
| Metric | Q3 2009 | Q3 2008 | 9M 2009 | 9M 2008 |
|---|---|---|---|---|
| Revenue | $4.139 billion | $4.814 billion | $9.951 billion | $11.344 billion |
| Operating income | $1.196 billion | $1.485 billion | $1.860 billion | $2.279 billion |
| Net income | $1.073 billion | $1.333 billion | $1.597 billion | $1.959 billion |
| Diluted EPS | $1.33 | $1.65 | $2.00 | $2.43 |
| Net cash from operations | Not separately provided | Not separately provided | $2.630 billion | $2.879 billion |
Q3 operating margin was approximately 28.9%, compared with 30.8% in the prior-year quarter; nine-month operating margin was approximately 18.7%, compared with 20.1%. Net margin was approximately 25.9% in Q3 and 16.0% for the nine months, versus 27.7% and 17.3%, respectively, in the comparable periods.
- Cruise passenger-ticket revenue was $3.105 billion in Q3 and $7.566 billion for nine months. Onboard and other cruise revenue was $825 million and $2.132 billion, respectively.
- Passengers carried increased to 2.485 million in Q3 and 6.383 million for nine months. Occupancy was 111.4% and 106.4%, respectively.
- Capacity, measured in available lower berth days, increased 5.5% in Q3 and 4.6% for nine months.
- Q3 net revenue yield declined 16.5% to $202.21 per ALBD; on a constant-dollar basis, the decline was 12.3%. Nine-month net revenue yield declined 15.0% to $171.16; constant-dollar yield declined 9.5%.
- Q3 net cruise cost per ALBD declined 14.8% to $111.29; nine-month net cruise cost per ALBD declined 15.0% to $110.57. Lower fuel prices were the principal benefit.
- Fuel cost per metric ton declined to $405 in Q3 from $666 and to $330 for nine months from $565.
- Cash and cash equivalents were $976 million at August 31, 2009, compared with $650 million at November 30, 2008 and $792 million at August 31, 2008.
- Debt consisted of approximately $1.741 billion of current debt obligations and $8.373 billion of long-term debt, excluding other liabilities.
- Shareholders’ equity was $21.560 billion at August 31, 2009, versus $19.098 billion at November 30, 2008.
Material changes versus the prior comparable period
- Q3 revenue decreased 14.0%, operating income decreased approximately 19.5%, net income decreased approximately 19.5%, and diluted EPS decreased 19.4%.
- Nine-month revenue decreased 12.3%, operating income decreased approximately 18.4%, net income decreased approximately 18.5%, and diluted EPS decreased 17.7%.
- Pricing and onboard spending were pressured by the economic downturn, while the stronger U.S. dollar reduced reported euro- and sterling-denominated results. H1N1-related CDC recommendations against non-essential travel to Mexico also reduced revenue and affected itineraries.
- Lower fuel prices reduced Q3 fuel expense by approximately $211 million and nine-month fuel expense by approximately $555 million. Cost containment and lower commissions also reduced expenses.
- The company suspended its quarterly dividend beginning in March 2009 and paid $314 million of dividends during the first nine months, compared with $945 million in the prior-year period.
- Capital expenditures were $2.402 billion for the first nine months, including approximately $2.0 billion for new ships.
- In July 2009, the company acquired the remaining 25% of Ibero Cruises for $33 million, making it wholly owned.
Liquidity, debt and cash flow
Operating cash flow of $2.630 billion funded most of the $2.454 billion of investing cash outflows, including shipbuilding and other capital expenditures. Financing activities provided $123 million, reflecting new debt issuance, repayments, reduced dividends and other financing activity. Cash increased by $326 million during the nine months.
Management reported liquidity of approximately $6.2 billion at August 31, 2009, consisting of $682 million of cash and cash equivalents excluding $294 million of cash used for current operations, $2.6 billion available under revolving facilities and $3.0 billion of committed financing. Management expected existing cash flow and committed facilities to fund expected fourth-quarter 2009 and 2010 requirements.
The company reported compliance with its debt covenants and expected continued compliance during the remainder of fiscal 2009. Credit ratings were A3 from Moody’s and BBB+ from Standard & Poor’s; S&P had downgraded the company from A- and assigned a negative outlook in March 2009.
Guidance, outlook, risks and unusual items
- As of September 22, 2009, management forecast fourth-quarter 2009 diluted EPS of $0.16 to $0.20, based on fuel prices of $465 per metric ton, an exchange rate of $1.46 per euro and $1.67 per sterling.
- Expected ALBD capacity growth was 7.7% in Q4 2009, 5.4% for fiscal 2009, 7.7% for 2010, 5.1% for 2011 and 3.5% for 2012.
- Key risks include discretionary consumer demand, fuel prices and supply, foreign currency movements, interest rates, competition and overcapacity, adverse weather, disease outbreaks, geopolitical events, accidents, regulatory changes, insurance availability, port access, shipbuilding execution and access to financing.
- The Florida Attorney General was investigating whether fuel supplements set by Carnival and other cruise lines violated Florida antitrust laws. Carnival stated that it was cooperating.
- The company recognized a $15 million nonoperating gain from unwinding a lease-out/lease-back transaction. At August 31, 2009, estimated contingent obligations for two remaining LILO transactions totaled $579 million, with an estimated potential termination payment of approximately $94 million in a specified default scenario.
- Annual goodwill and trademark impairment reviews as of July 31, 2009 identified no impairment, but management noted that deterioration in market conditions or operating performance could require future impairment charges.
- The company does not hedge fuel price exposure with financial instruments. At August 31, 2009, 73% of debt carried fixed interest rates and 27% carried variable rates, including swaps.
Important facts for investors to verify
- Whether booking trends, pricing and onboard spending recovered after the significant 2009 yield declines.
- The sustainability of liquidity after scheduled ship deliveries, capital expenditures, debt maturities and committed financing drawdowns.
- Compliance with debt covenants and the effect of any further credit-rating downgrade on borrowing costs and financing access.
- Actual fourth-quarter 2009 EPS versus the $0.16–$0.20 guidance range, including the effect of fuel prices and currency movements.
- Potential developments in the Florida Attorney General fuel-supplement investigation and other litigation.
- Whether goodwill or trademark impairment indicators emerged after the July 31 review.