Carnival Corp Ltd. 10-Q Summary: Period Ended May 31, 2008
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Carnival Corporation & plc, a dual-listed company operating as a single economic enterprise. The report covers the three and six months ended May 31, 2008. The company operates a global fleet of cruise ships and related tour operations. The financial statements are unaudited.
Key Financial Metrics
| Metric (in millions) | 3 Months Ended May 31, 2008 | 6 Months Ended May 31, 2008 |
|---|---|---|
| Total Revenues | $3,378 | $6,530 |
| Operating Income | $482 | $794 |
| Net Income | $390 | $626 |
| Diluted EPS | $0.49 | $0.78 |
| Operating Cash Flow (6mo) | $1,815 | |
| Capital Expenditures (6mo) | ($1,593) | |
| Cash and Equivalents (May 31, 2008) | $988 | |
| Total Debt (Current + Long-Term) | $9,210 |
Note: Total Debt calculated as Short-term borrowings ($145) + Current portion of long-term debt ($1,386) + Convertible debt subject to current put options ($230) + Long-Term Debt ($7,689).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 16.5% ($478 million) for the quarter and 16.9% ($942 million) for the six months compared to the prior year. Growth was driven by an 8.3% increase in capacity (ALBDs) and higher ticket pricing, including fuel supplements.
- Profitability: Operating income increased 5.0% for the quarter but decreased 2.2% for the six months. The six-month decline was primarily due to significantly higher fuel costs, which offset gains from capacity and pricing.
- Cost Pressures: Fuel costs per metric ton surged 59% to $530 in the quarter (from $333 in 2007) and 62% to $514 for the six months. Total operating costs rose 22.5% for the quarter.
- Occupancy: Occupancy rates remained robust at 104.8% for the quarter and 104.5% for the six months, exceeding 100% due to industry practice of counting two passengers per cabin regardless of actual occupancy.
Guidance, Outlook, and Risks
- Outlook: As of June 19, 2008, management expected diluted EPS for the full fiscal year 2008 to be in the range of $2.70 to $2.80. This guidance assumed fuel prices of $594 per metric ton and specific currency exchange rates.
- Capacity Expansion: ALBD capacity is expected to grow 8.8% in the third and fourth quarters of fiscal 2008 due to new ship deliveries, though the Queen Elizabeth 2 (QE2) is scheduled for withdrawal in November 2008.
- Liquidity: The company reported a working capital deficit of $4.9 billion, which is standard for the industry due to customer deposits ($3.6 billion) and current debt obligations. Adjusted working capital was $456 million. Total liquidity stood at $5.3 billion, including cash and committed credit facilities.
- Risks and Contingencies:
- Fuel Prices: Continued volatility in global fuel demand and prices poses a significant risk to margins.
- Legal Proceedings: The Florida Attorney General is investigating potential antitrust violations regarding fuel supplements. Several class-action lawsuits regarding fuel supplements were dismissed in April 2008, but the investigation continues.
- Contingent Obligations: The company has estimated contingent obligations of approximately $1.1 billion related to lease-out/lease-back transactions for three ships, though these are largely secured by financial institutions with high credit ratings.
Investor Verification Checklist
- Verify the sensitivity of future earnings to fuel price fluctuations, given the 59% increase in fuel costs per ton.
- Confirm the status of the Florida Attorney General's antitrust investigation regarding fuel supplements.
- Monitor the company's ability to refinance current debt obligations, specifically the $230 million convertible debt subject to put options.
- Assess the impact of the QE2 withdrawal in November 2008 on fourth-quarter capacity and revenue.
- Review the credit ratings of the financial institutions backing the $1.1 billion in contingent lease obligations.