Carnival Corp Ltd. annual report, FY2022

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Carnival Corporation & plc — Fiscal 2022 Form 10-K Summary

Business context and reporting period

The filing is a joint Form 10-K for Carnival Corporation and Carnival plc, which operate as a single economic enterprise under a dual-listed company structure. The reporting period ended November 30, 2022; the filing was signed January 27, 2023. This is an annual filing, not a standalone fourth-quarter report.

Carnival is a global cruise operator with brands including Carnival Cruise Line, Princess Cruises, Holland America Line, Costa, AIDA, P&O Cruises, Cunard and Seabourn. Guest operations resumed progressively after the COVID-19 pause that began in March 2020. By November 30, 2022, 97% of capacity was serving guests.

Key operating and financial metrics

  • Passengers carried in 2022: 7.7 million, comprising 5.6 million in North America and Australia and 2.1 million in Europe and Asia, versus 1.2 million in 2021 and 12.9 million in 2019.
  • Passenger capacity as of December 31, 2022: 259,060 lower berths for Carnival, compared with estimated global cruise-industry capacity of 663,970.
  • Ships in service or expected to return to service as of November 30, 2022: 91, with approximately 253,760 lower berths.
  • Onboard and other revenue represented 42% of cruise revenue in 2022, versus 30% in 2019, reflecting the resumed operating model and mix of onboard spending.
  • Average 2022 shipboard employees: 75,000, excluding employees on leave. Shoreside staffing averaged 10,000 full-time and 2,000 part-time or seasonal employees.
  • Six cruise ships were under construction and expected to be delivered through 2025, with combined listed capacity of approximately 22,560 lower berths.
  • The filing text supplied does not provide clear consolidated values for revenue, operating income, net income or loss, EBITDA, margins, operating cash flow, capital expenditures, cash and cash equivalents, total debt, or liquidity. Those amounts are incorporated by reference from Exhibit 13, which was not included in the supplied text.

Material changes versus comparable periods

  • Operations expanded substantially from 2021 as more ships resumed service. Passenger volume increased to 7.7 million from 1.2 million, but remained below the 12.9 million carried in 2019.
  • Capacity serving guests reached 97% by November 30, 2022, marking a significant recovery from the pandemic-related pause.
  • Marketing and advertising spending increased as operations resumed, following significant reductions in 2020 and 2021.
  • The company increased shipboard staffing and shoreside hiring to support the recovery, while continuing to face labor shortages and higher labor costs.
  • Onboard and other revenue became a larger proportion of cruise revenue, reaching 42% compared with 30% in 2019.
  • Josh Weinstein became President, Chief Executive Officer and Chief Climate Officer in August 2022, succeeding Arnold Donald as CEO.
  • The company issued or entered into several debt and convertible-note transactions during 2022, including 10.5% senior unsecured notes due 2030, 10.375% senior unsecured notes due 2028, and additional convertible senior notes. The supplied text does not state the aggregate year-end debt balance.
  • Dividends on Carnival Corporation common stock and Carnival plc ordinary shares remained suspended; the suspension began March 30, 2020.

Guidance, outlook, commentary and risks

Management’s stated priorities are to restore operations, improve pricing and guest demand, generate cash from operations, strengthen the balance sheet, reduce debt over time and ultimately return to strong profitability and investment-grade credit ratings. The filing does not provide a clear numerical earnings or revenue forecast in the supplied text.

  • Debt and liquidity are central risks. The company states that substantial debt and debt-service obligations may constrain working capital, capital expenditures and strategic flexibility. Certain facilities include minimum liquidity, interest coverage, equity and debt-to-capital requirements.
  • Carnival reported compliance with applicable debt covenants as of November 30, 2022, but warned that future compliance depends on operating performance, financing access and external conditions.
  • Variable-rate borrowings expose the company to higher interest expense as rates rise. The transition away from U.S. dollar LIBOR may also affect borrowing costs.
  • Key operating risks include renewed pandemics, travel restrictions, geopolitical events including the invasion of Ukraine, inflation, higher fuel prices, higher interest rates, foreign-exchange volatility, supply-chain disruption, labor shortages and adverse weather.
  • Climate and environmental regulation may increase costs. EU maritime emissions rules are expected to begin affecting Carnival in 2024, with potentially material profitability impacts beginning in 2025, although the ultimate effect remains uncertain.
  • The company has 2030 goals including a 20% reduction in carbon intensity from a 2019 baseline, 60% shore-power capability and expanded LNG, advanced air-quality and energy-efficiency programs. It aspires to achieve net carbon-neutral ship operations by 2050.
  • Unusual legal and regulatory items include a court-ordered environmental compliance plan that remained operative until April 2022 and a June 2022 Coral Princess food-waste discharge in the Great Barrier Reef Marine Park. Carnival stated that the latter was not expected to have a material effect on consolidated financial statements.
  • A new Carnival Grand Bahama port destination is under development and is expected to open in 2025. The project is expected to support approximately 1,000 local jobs, but entails additional capital commitments and execution risk.

Most important facts for investors to verify

  1. Obtain Exhibit 13 and verify fiscal 2022 revenue, net loss, operating loss, adjusted EBITDA, cash flow from operations, capital expenditures, cash, liquidity and total debt.
  2. Assess the pace and quality of the recovery using occupancy, net ticket yield, onboard and other revenue per passenger day, bookings and pricing trends.
  3. Review debt maturities, interest rates, secured versus unsecured borrowings, covenant thresholds and available revolver capacity.
  4. Determine whether operating cash flow is sufficient to fund debt service, newbuild commitments, maintenance capital expenditures and port investments.
  5. Evaluate exposure to fuel prices, interest rates, foreign currencies, inflation and labor costs.
  6. Review the financial effects and implementation timing of EU ETS, FuelEU Maritime, IMO and other environmental requirements.
  7. Review COVID-19 actions, environmental proceedings, other contingencies and insurance limitations, including the absence of business-interruption coverage for lost ship revenue.
  8. Confirm the status of dividend suspension, equity issuance or stock-swap activity, and potential dilution from outstanding convertible notes and equity awards.