Carnival Corporation & plc: 2024 First-Quarter 10-Q Summary
Business Context and Reporting Period
Carnival Corporation & plc operates cruise brands, port destinations, hotels and transportation businesses. This joint Form 10-Q covers the three months ended February 29, 2024, compared with February 28, 2023. Results are seasonal, with the largest share of operating income typically generated during the third quarter.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $5.406 billion | $4.432 billion | 22% increase |
| Operating income (loss) | $276 million | $(172) million | $448 million improvement |
| Operating margin | 5.1% | (3.9)% | Improved |
| Net income (loss) | $(214) million | $(693) million | $479 million improvement |
| Net margin | (4.0)% | (15.6)% | Improved |
| Diluted EPS | $(0.17) | $(0.55) | Improved |
| Net cash from operations | $1.768 billion | $388 million | $1.380 billion increase |
| Capital expenditures | $2.138 billion | $1.075 billion | Nearly doubled |
Passenger ticket revenue increased 26% to $3.617 billion, while onboard and other revenue increased 15% to $1.790 billion. Occupancy increased to 102% from 91%, passenger cruise days increased to 23.5 million from 20.2 million, and available lower berth days increased 4.2% to 23.0 million.
Operating costs and expenses increased 12% to $3.705 billion, and selling and administrative expenses increased 14% to $813 million. Fuel expense declined $30 million to $505 million, while repair and maintenance, port, commissions, transportation, onboard costs, advertising and compensation expenses increased.
At February 29, 2024, cash and cash equivalents were $2.242 billion, compared with $2.415 billion at November 30, 2023. Total liquidity was approximately $5.2 billion, consisting of cash and $3.0 billion available under the Revolving Facility. Working capital was negative $7.9 billion, largely reflecting $6.6 billion of customer deposits and current debt obligations.
Total debt was $31.552 billion before unamortized issuance costs and discounts, compared with $31.339 billion at November 30, 2023. Long-term debt, net of current maturities and issuance costs, was $28.544 billion. Interest expense declined 13% to $471 million. The company reported compliance with its debt covenants as of February 29, 2024.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by stronger demand and ticket pricing, higher occupancy, a 4.2% capacity increase and favorable foreign-currency translation.
- North America operating income increased to $272 million from $86 million; Europe improved to $119 million from a $166 million operating loss.
- Operating cash flow increased substantially, helped by stronger operations, customer deposits and the release of substantially all credit-card reserve funds.
- Investing cash use increased to $2.163 billion, primarily because of higher newbuild and other capital expenditures.
- The company repaid $1.390 billion of debt and issued $1.735 billion of long-term debt. It extinguished $998 million principal amount of notes and recorded $33 million of debt extinguishment and modification costs.
- The existing $3.0 billion Revolving Facility matures in August 2024 and is expected to be replaced by a $2.5 billion New Revolving Facility available through August 2027.
Outlook, Commentary, Risks and Unusual Items
Management reported continued strength in demand, occupancy and ticket pricing, but the filing does not provide a clear quantitative full-year earnings or revenue guidance figure.
- The EU Emissions Trading Scheme became applicable on January 1, 2024. Management expects an approximately $50 million impact in 2024; first-quarter allowance expense was $3 million.
- Management believes global minimum tax rules could affect results beginning in 2026. Before mitigation, the potential annual impact is estimated at approximately $200 million, although the rules and applicable timing remain subject to change.
- Remaining new ship growth capital commitments were $0.8 billion for the remainder of 2024, $0.9 billion in 2025, $0.3 billion in 2026, $1.2 billion in 2027 and $1.0 billion in 2028.
- Unhedged euro-denominated newbuild commitments totaled $2.8 billion for ships scheduled through 2027, exposing the company to foreign-currency movements.
- Key risks include substantial leverage and debt service needs, refinancing and covenant requirements, fuel prices, interest rates, foreign exchange, geopolitical events, inflation, pandemics, climate regulation, environmental compliance, cyber incidents, labor costs, supply-chain disruption, ship operations and litigation.
- A Havana Docks lawsuit resulted in a $114 million judgment, including fees and costs; Carnival has appealed, with oral argument scheduled for May 17, 2024.
- The company is involved in other COVID-19 litigation, environmental matters and regulatory inquiries, but management believes the ultimate outcomes will not materially affect the consolidated financial statements.
Most Important Facts for Investors to Verify
- Whether demand, occupancy above 100% and pricing strength persist beyond the seasonal first quarter.
- Progress toward reducing approximately $31.6 billion of debt and refinancing upcoming maturities, particularly the 2024 and 2025 obligations.
- Whether operating cash flow remains sufficient to fund debt service, newbuild commitments and other capital expenditures without materially increasing leverage.
- The replacement of the existing Revolving Facility with the $2.5 billion New Revolving Facility and continued compliance with financial covenants.
- The actual cost of EU emissions requirements and the eventual impact of global minimum tax rules.
- Potential exposure from the Havana Docks appeal, environmental proceedings, cyber incidents and other litigation or regulatory matters.