Carnival Corporation & plc 2017 Form 10-K Summary
Business Context and Reporting Period
Joint annual report for Carnival Corporation, incorporated in Panama, and Carnival plc, incorporated in England and Wales. The companies operate as a dual-listed company and function as a single economic enterprise. The filing covers the fiscal year ended November 30, 2017, not a standalone fourth quarter.
Carnival is the world’s largest cruise company, operating 103 ships across North America, Europe, Australia and Asia through brands including Carnival Cruise Line, Princess, Holland America, Seabourn, Costa, AIDA, P&O Cruises and Cunard. It carried approximately 12.1 million guests in 2017 and had approximately 231,570 passenger berths at year-end.
Financial and Operating Metrics
- The provided filing text incorporates the selected financial data, financial statements and management’s discussion and analysis by reference to Exhibit 13, but does not include the underlying values for revenue, operating income, net income, earnings per share, cash flow, margins, debt, cash or liquidity. The filing text therefore does not provide clear values for those metrics.
- Onboard and other activities represented approximately 25% of 2017 revenue. These activities include beverages, casinos, internet, spas, shore excursions, specialty restaurants, retail and photography.
- The company states that significant operating cash flow enables it to fund capital investments, manage debt and return capital to shareholders, but the provided text does not quantify operating cash flow, free cash flow, total debt or liquidity.
- Quarterly dividends increased during 2017 from $0.35 per share for the February quarter to $0.45 per share for the November quarter, compared with $0.30 to $0.35 per share during 2016. Management characterized the annualized dividend as exceeding $1 billion.
- Since resuming its stock repurchase program in late 2015, the company repurchased approximately 63 million shares for $3.1 billion. During the quarter ended November 30, 2017, it repurchased approximately 1.0 million Carnival Corporation shares at an average $66.23 per share and 2.7 million Carnival plc shares at an average $65.24 per share.
- At November 30, 2017, 60% of passenger capacity was in the North America segment and 40% was in Europe, Australia and Asia. Cruise guests carried increased from 11.52 million in 2016 to 12.10 million in 2017.
Material Changes Versus the Prior Comparable Period
- Passenger capacity increased from approximately 220,000 berths in 2016 to 230,000 in 2017, while guests carried increased from 11.52 million to 12.10 million.
- Passenger capacity deployment shifted modestly toward Europe without the Mediterranean, Alaska and Asia, while Mediterranean deployment declined from 15% to 13% and China deployment increased from 5% to 6% in 2017.
- The quarterly dividend was increased, reaching $0.45 per share in the fourth fiscal quarter, versus $0.35 per share in the comparable 2016 quarter.
- AIDAprima and AIDAperla operated with LNG dual-fuel capability while in port, and the company continued expanding exhaust gas cleaning systems and shore-power capabilities.
- Princess Cruises introduced the Ocean Medallion guest-experience platform on Regal Princess in November 2017.
- Holland America Line invested more than $100 million in brand enhancements during 2017, with approximately $200 million remaining to be invested over the following year.
Guidance, Outlook, Management Commentary and Risks
- Management expects approximately 5% of total capacity to be deployed in China during 2018 and views China and broader Asia as significant long-term growth opportunities.
- The company expected to complete the rollout of its revenue-management system across six brands in 2018.
- Eighteen ships were under construction or contract for delivery between 2018 and 2022, including new ships for Carnival Cruise Line, Princess, Holland America, Seabourn, Costa, AIDA, P&O Cruises and Cunard.
- Seven next-generation ships on order are intended to operate using LNG for 100% of their power both in port and at sea. The company expects these ships to reduce air emissions, but acknowledges risks related to LNG availability, infrastructure, pricing, regulation and technology.
- The company remains subject to the December 2016 environmental plea agreement and has increased training, oversight and equipment investments to improve environmental compliance. A NOAA investigation concerning discharges by certain Holland America Line and Princess Cruises vessels remained pending; management stated that it did not expect a material consolidated financial statement impact.
- Key risks include weaker cruise demand, adverse economic or geopolitical conditions, health and safety incidents, contagious disease, severe weather, environmental compliance costs, fuel prices and availability, foreign exchange movements, cybersecurity and data privacy incidents, overcapacity, competition, labor availability, shipbuilding delays, supply-chain disruption and changes to tax regimes.
- Results are seasonal, with the largest share of operating income historically earned in the third fiscal quarter. The filing also notes that future dividends depend on earnings, liquidity, financial condition, bookings, capital requirements, credit ratings and the cost and availability of debt.
Most Important Facts for Investors to Verify
- Retrieve Exhibit 13 and verify 2017 versus 2016 revenue, operating income, net income, diluted EPS, operating cash flow, capital expenditures, free cash flow, debt, cash and liquidity.
- Verify the company’s reported revenue yields, occupancy, net cruise costs excluding fuel and fuel expense trends, which are not included in the supplied filing text.
- Review the debt maturity schedule, revolver availability, interest rates, covenant requirements and investment-grade credit metrics.
- Assess the financial commitments and delivery timing for the 18 contracted ships, including expected capital expenditures and capacity growth.
- Evaluate environmental compliance obligations, the December 2016 plea agreement, the NOAA investigation and potential future regulatory costs.
- Review exposure to fuel prices, LNG infrastructure, foreign currencies, cybersecurity, health and safety incidents, severe weather and demand weakness in China and other developing markets.
- Confirm the sustainability of dividend increases and share repurchases against normalized free cash flow and future capital requirements.