Carnival Corporation & plc — Q1 2023 Form 10-Q Summary
Business context and reporting period
Joint quarterly report for Carnival Corporation and Carnival plc for the three months ended February 28, 2023, filed March 29, 2023. Results reflect the continued restoration of cruise operations following the COVID-19-related pause. By quarter-end, 96% of capacity was serving guests and management stated that the return to guest cruise operations was essentially complete.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $4.432 billion | $1.623 billion | +$2.809 billion |
| Operating income (loss) | $(172) million | $(1.491) billion | +$1.320 billion |
| Net income (loss) | $(693) million | $(1.891) billion | +$1.198 billion |
| Diluted EPS | $(0.55) | $(1.66) | Improved |
| Operating cash flow | $388 million | $(1.212) billion | +$1.600 billion |
| Capital expenditures | $1.075 billion | $2.730 billion | Down $1.655 billion |
- Passenger ticket revenue was $2.870 billion and onboard and other revenue was $1.563 billion. Operating margin was approximately negative 3.9%; net margin was approximately negative 15.6%.
- Occupancy increased to 91% from 54%; available lower berth days rose to 22.1 million from 13.3 million; passengers carried increased to 2.7 million from 1.0 million.
- NAA operating income was $86 million versus a loss of $840 million; Europe operating loss was $166 million versus a loss of $598 million.
- Interest expense increased to $539 million from $368 million because of higher average rates and debt balances. Fuel expense rose to $535 million from $365 million.
- Cash and cash equivalents were $5.455 billion at February 28, 2023. Total liquidity was approximately $8.1 billion, including $2.6 billion available under the existing revolving facility.
- Total debt was $35.963 billion gross, including $32.672 billion of long-term debt. Current debt maturities included $2.264 billion of current long-term debt and $200 million of short-term borrowings.
- Working capital was negative $3.9 billion, primarily because of $5.5 billion of customer deposits collected before voyages. Customer deposits increased from $4.9 billion at November 30, 2022.
Material changes versus the prior comparable period
- Revenue growth was driven by more ships in service, higher capacity utilization and improved occupancy as operations resumed. NAA occupancy was 98% versus 59%, while Europe occupancy was 80% versus 45%.
- Operating costs increased to $3.311 billion from $2.030 billion, primarily due to the larger operating fleet and resumed operations. Selling and administrative expense increased by $182 million.
- Operating losses narrowed substantially, but the company remained unprofitable because of operating costs, depreciation and substantial interest expense.
- Operating cash flow turned positive, aided by the reduced net loss and a $596 million increase in customer deposits.
- Financing activities provided $111 million, reflecting $830 million of new long-term debt, $679 million of principal repayments and $40 million of debt issuance costs.
- Capital expenditures declined from the prior-year period but remained significant, including $0.8 billion for newbuilds and $243 million for ship improvements, information technology and buildings.
- Effective December 1, 2022, the company adopted convertible-debt accounting guidance, increasing debt by $239 million, reducing additional paid-in capital by $229 million and reducing retained earnings by $10 million.
- In February 2023, the company entered into a new $2.1 billion multi-currency revolving facility, available beginning August 2024 to replace the existing facility. Three unencumbered vessels with a February 28, 2023 net book value of $2.9 billion are expected to be contributed as part of the arrangement.
Guidance, outlook, risks and unusual items
The filing does not provide a clear numerical earnings or revenue forecast. Liquidity assumptions include continued cruise operations, higher revenue per passenger than in 2019, improving occupancy toward historical levels during summer 2023, stabilization of fuel prices and moderation of inflationary pressures. Results are seasonal, with the largest share of operating income typically earned in the third quarter.
- Management believes available liquidity is sufficient to fund obligations and expects covenant compliance for at least the next twelve months, subject to stated assumptions. The company plans to pursue refinancing and maturity extensions.
- Debt service remains a major risk. Scheduled principal payments were $785 million in the remainder of Q2 2023, $465 million in Q3 2023, $529 million in Q4 2023, $2.734 billion in 2024 and $4.488 billion in 2025, before subsequent amendments and extensions.
- On March 13, 2023, after quarter-end, the company obtained waivers or amendments relating to interest coverage covenants through May 2024 or later testing dates. At February 28, 2023, it reported compliance with applicable covenants.
- Approximately $5.8 billion of debt referenced U.S. dollar LIBOR with maturities beyond June 2023. The company was evaluating successor-rate provisions and updating agreements as needed.
- Principal risks include fuel prices, inflation, higher interest rates, foreign currency movements, renewed pandemics, demand and occupancy shortfalls, geopolitical conditions, climate and environmental regulation, labor and supply-chain pressures, cyber incidents and substantial leverage.
- The company has $4.258 billion of new-ship growth capital commitments through 2025 and an unhedged euro-denominated newbuild exposure of approximately $3.7 billion for deliveries through 2025.
- Havana Docks litigation resulted in a December 2022 judgment of $114 million including fees and costs; Carnival appealed. In March 2023, a jury awarded Carnival $21 million in its litigation against DeCurtis.
- Customer deposits included approximately $174 million of unredeemed future cruise credits, of which approximately $124 million were refundable. The company cannot clearly estimate future redemptions or refunds.
Most important facts for investors to verify
- Whether occupancy, pricing and onboard spending continue improving sufficiently to produce sustained positive operating and free cash flow.
- The company’s ability to refinance substantial 2023–2026 maturities without materially higher interest costs, additional collateral or restrictive covenants.
- Actual liquidity after required debt repayments, capital expenditures, ship commitments and credit-card processor reserve requirements.
- Progress toward meeting interest coverage and other financial covenants after the disclosed waivers and amendments expire.
- Exposure to fuel prices, floating-rate debt, LIBOR transition costs and foreign-currency movements.
- Potential cash effects of litigation, environmental matters, cyber incidents, future cruise-credit refunds and other contingencies.
- Whether the filing’s recovery assumptions regarding summer 2023 occupancy, fuel prices and inflation are realized; the filing text does not provide a clear numerical full-year earnings guidance range.