Carnival Corp Ltd. 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Carnival Corporation & plc, a dual-listed company operating cruise lines globally. The report covers the three and six months ended May 31, 2009. The company operates in a seasonal industry, with peak demand typically occurring in the third fiscal quarter (Northern Hemisphere summer).
Key Financial Metrics
| Metric (in millions) | 3 Months Ended May 31, 2009 | 6 Months Ended May 31, 2009 |
|---|---|---|
| Total Revenues | $2,948 | $5,812 |
| Operating Income | $353 | $664 |
| Net Income | $264 | $524 |
| Diluted EPS | $0.33 | $0.66 |
| Operating Cash Flow (6mo) | $1,441 | |
| Cash and Equivalents (May 31, 2009) | $485 | |
| Total Debt (Current + Long-Term) | $10,119 | |
| Fuel Cost per Metric Ton | $304 | $291 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 12.7% ($430 million) for the quarter and 11.0% ($718 million) for the six months compared to 2008. This was driven by lower ticket pricing due to the economic downturn, reduced onboard spending, and a stronger U.S. dollar against the euro and sterling.
- Cost Reductions: Operating costs decreased 12.7% for the quarter, primarily due to a 43% drop in fuel prices (from $530 to $304 per metric ton) and lower commissions. Fuel expenses dropped $180 million for the quarter and $347 million for the six months.
- Profitability: Net income decreased 32.3% for the quarter ($264 million vs. $390 million) and 16.3% for the six months ($524 million vs. $626 million). Operating margins compressed slightly as costs as a percentage of revenue increased from 85.7% to 88.0% for the quarter.
- Capacity Growth: Despite revenue declines, capacity (ALBDs) increased 5.9% for the quarter and 4.1% for the six months, driven by new ship deliveries and expansion in European markets.
Guidance, Outlook, and Risks
- Dividend Suspension: The Board of Directors suspended the quarterly dividend beginning March 2009 to preserve cash and liquidity. The suspension is intended to continue throughout 2009.
- Outlook: As of June 18, 2009, management projected diluted EPS for the full year 2009 to be in the range of $2.00 to $2.10, based on fuel prices of $353 per metric ton and specific currency exchange rates.
- Liquidity: The company reported total liquidity of $4.8 billion (as adjusted for June 2009 financing), including cash, revolving credit facilities, and committed ship financing. Management believes existing liquidity and cash flow are sufficient to fund operations and capital projects through 2010.
- Risks: Key risks include the ongoing economic downturn, fluctuations in foreign currency exchange rates, fuel price volatility, and the impact of the H1N1 flu virus on travel to Mexico. The company also faces a potential antitrust investigation by the Florida Attorney General regarding fuel supplements.
- Contingencies: The company has contingent obligations related to Lease In/Lease Out (LILO) transactions. While most are considered extinguished, a default could trigger termination payments of approximately $94 million.
Investor Verification Checklist
- Fuel Price Sensitivity: Verify the impact of current fuel prices against the $353/ton assumption used in the full-year guidance.
- Currency Exposure: Monitor the U.S. dollar strength against the euro and sterling, as a stronger dollar significantly reduces reported revenues and costs for European operations.
- Dividend Policy: Confirm if the dividend suspension remains in place for the remainder of fiscal 2009 and the criteria for reinstatement.
- Debt Covenants: Review compliance with financial covenants, particularly given the S&P credit rating downgrade to BBB+ with a negative outlook.
- Impairment Reviews: Watch for the annual goodwill and trademark impairment review scheduled for July 31, 2009, given the stock price trading below book value.