Carnival Corporation & plc 2018 Form 10-K Summary
Business context and reporting period
Carnival Corporation and Carnival plc operate as a dual-listed company and a single economic enterprise. The group is the world’s largest cruise company, operating 104 ships across brands including Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, Costa, AIDA, P&O Cruises and Cunard.
The filing covers the fiscal year ended November 30, 2018, and was filed January 28, 2019. It is an annual report rather than a standalone fourth-quarter filing. The detailed financial statements and management’s discussion are incorporated by reference from Exhibit 13, which was not included in the supplied text.
Key operating and financial metrics
| Metric | 2018 | Prior comparable period |
|---|---|---|
| Cruise guests carried | 12.4 million | 12.1 million in 2017; 11.5 million in 2016 |
| Passenger capacity | Approximately 236,910 lower berths | Approximately 230,000 in 2017; 220,000 in 2016 |
| Ships operated | 104 | Not clearly provided in the supplied comparable-period data |
| Onboard and other revenue | 25% of total revenue | Not clearly provided |
| Shipboard employees | Average of 88,000 | Not clearly provided |
| Shoreside employees | 12,000 full-time and 2,000 part-time or seasonal employees | Not clearly provided |
| Quarterly dividend | Increased to $0.50 per share | $0.40 per share in 2017 |
| Annual dividends | More than $1.4 billion | Not clearly provided |
The supplied filing text does not provide clear values for consolidated revenue, operating income, net income, earnings per share, operating cash flow, free cash flow, capital expenditures, debt, cash and cash equivalents, liquidity, margins or leverage. Those amounts are contained in the incorporated Exhibit 13 financial statements and MD&A but are not reproduced in the source provided.
Material changes versus the prior comparable period
- Cruise guests carried increased to 12.4 million from 12.1 million in 2017, while reported passenger capacity increased to approximately 236,910 from approximately 230,000.
- The company increased its quarterly dividend from $0.40 to $0.50 per share.
- Carnival completed implementation of a new revenue-management system across six brands and continued deploying digital applications, including Carnival’s Hub App, Costa’s MyCosta and AIDA’s myAIDA.
- Carnival Horizon entered service in April 2018, and Seabourn Ovation entered service in May 2018.
- The company had 21 ships under construction or contract for delivery through 2025, including 11 next-generation LNG-powered ships on order.
- China-related capacity declined from 5% of 2018 capacity to an expected 4% in 2019; management continued to identify China and Asia as long-term growth opportunities but noted that market development may not meet expectations.
- During the three months ended November 30, 2018, Carnival plc repurchased 4.5 million ordinary shares at an average price of $58.24 per share. No Carnival Corporation common stock was repurchased during the quarter.
Guidance, outlook, commentary, risks and unusual items
Management’s stated strategy is to grow demand faster than capacity, improve revenue yields, optimize costs, leverage global purchasing and technology scale, and maintain investment-grade credit ratings and a strong balance sheet. The filing does not provide clear numerical 2019 earnings, revenue, cash flow or margin guidance in the supplied text.
- Global cruise passenger capacity was estimated to grow at a compound annual rate of 6.7% from 2018 to 2022, compared with 5.6% for Carnival. These are estimates and may overstate actual growth because they primarily reflect announced ship withdrawals.
- Caribbean itineraries represented 32% of expected 2019 capacity, Europe excluding the Mediterranean 14%, the Mediterranean 13%, and China 4%.
- The company expects the global 0.5% sulfur cap and the EU sulfur requirements beginning in 2020 to increase fuel costs, although advanced air-quality systems, LNG ships and efficiency initiatives may mitigate the impact.
- Since 2007, Carnival reported an approximately 30% cumulative reduction in unit fuel consumption. It had equipped 47 ships for shore power use.
- Principal risks include adverse economic or geopolitical conditions, travel restrictions, ship incidents, illness, severe weather, environmental or safety violations, cybersecurity and data-privacy breaches, fuel prices and supply, foreign exchange, competition and overcapacity, recruiting qualified crew, shipyard delays, and slower-than-expected development in China and other emerging markets.
- Reported legal and regulatory matters included an €118,000 fine, costs and damages relating to alleged sulfur-fuel violations involving P&O Cruises’ Azura in France; Carnival was appealing. The filing states that the matter was not expected to materially affect the consolidated financial statements.
- A proposed class action concerning Carnival Cruise Line’s Vacation Protection product was stayed pending arbitration. An investigation followed an inadvertent liquid-food-waste discharge from Pacific Explorer in the Great Barrier Reef Marine Park. Management stated that neither matter was expected to have a material financial impact.
- Insurance policies have coverage limits, exclusions and deductibles, and the company does not carry coverage for loss of earnings or revenues from its ships or other operations.
Most important facts for an investor to verify
- Obtain Exhibit 13 and verify consolidated revenue, net income, adjusted earnings per share, operating cash flow, capital expenditures, cash, total debt, liquidity and leverage.
- Review 2018 versus 2017 changes in net revenue yields, occupancy, net cruise costs excluding fuel, fuel expense, interest expense and foreign-exchange effects.
- Assess the funding requirements and delivery schedule for 21 contracted ships, including the 11 LNG-powered vessels, and compare expected capacity growth with demand.
- Evaluate the effect of 2020 sulfur-emission rules, fuel prices, air-quality-system investments and LNG infrastructure on operating costs and capital spending.
- Confirm the sustainability of the $0.50 quarterly dividend and share-repurchase activity against cash flow, debt maturities, credit ratings and newbuild commitments.
- Monitor environmental, health, safety, cybersecurity, regulatory and litigation exposures, including the matters described in Item 3 and the company’s broader risk factors.