Carnival Corporation & plc — 2012 Q1 Form 10-Q Summary
Business context and reporting period
Joint quarterly filing for Carnival Corporation and Carnival plc, which operate as a dual-listed single economic enterprise. The reporting period ended February 29, 2012, compared with the three months ended February 28, 2011. Results are seasonal and the first quarter is not necessarily indicative of full-year performance. The group operates North America, Europe, Australia & Asia cruise brands, cruise-support operations, and tour and other businesses.
Key financial metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $3.582 billion | $3.419 billion | +4.8% |
| Operating income (loss) | $(82) million | $235 million | Down $317 million |
| Net income (loss) | $(139) million | $152 million | Down $291 million |
| Diluted EPS | $(0.18) | $0.19 | Down $0.37 |
| Operating margin | $(2.3)% | 6.9% | Down 9.2 percentage points |
| Net margin | $(3.9)% | 4.4% | Down 8.3 percentage points |
| Net cash from operating activities | $322 million | $412 million | Down $90 million |
| Capital expenditures | $267 million | $172 million | Up $95 million |
| Cash and cash equivalents | $471 million | $450 million at November 30, 2011 | Up $21 million during quarter |
- Cruise passenger ticket revenue increased 4.2% to $2.764 billion; onboard and other revenue increased 6.9% to $809 million.
- Net cruise revenue increased 6.1% to $2.786 billion. Constant-dollar net revenue yields increased 2.9%.
- Operating costs and expenses increased 12.5% to $2.694 billion. Fuel expense rose 31.6% to $592 million, primarily from higher prices.
- Net cruise costs excluding fuel per available lower berth day increased 6.4% on a constant-dollar basis; net cruise costs per available lower berth day increased 11.0%.
- Passengers carried increased to 2.262 million from 2.185 million, and occupancy increased to 105.3% from 105.0%.
- Total debt was approximately $9.527 billion, consisting of $538 million of short-term borrowings, $1.025 billion of current long-term debt, and $7.964 billion of long-term debt.
- Liquidity was reported at $6.6 billion, comprising cash, $2.1 billion available under revolving facilities net of commercial paper borrowings, and $4.3 billion of committed ship financings.
- Dividends paid were $194 million; dividends declared remained $0.25 per share.
Material changes versus the prior comparable period
- Revenue growth was more than offset by cost inflation, the Costa Concordia incident, the Costa Allegra impairment, and Ibero goodwill and trademark impairment charges.
- Fuel expense increased $142 million, including approximately $137 million attributable to higher fuel prices.
- Capacity increased 3.7% in available lower berth days. North America revenue and operating income were $2.082 billion and $114 million, versus $1.928 billion and $151 million in 2011.
- Europe, Australia & Asia revenue increased slightly to $1.466 billion, but the segment reported a $152 million operating loss versus $110 million of operating income, primarily because of the $173 million Ibero impairment charge and Costa-related effects.
- Operating cash flow declined 21.8%, while capital spending increased. Net short-term borrowings increased by $257 million, and long-term debt repayments were $112 million.
Guidance, outlook, risks and unusual items
- Management’s March 9, 2012 guidance was non-GAAP fully diluted EPS of $0.05–$0.09 for the second quarter and $1.40–$1.70 for full-year 2012. Guidance assumed fuel prices of $772 per metric ton for the second quarter and $766 for the full year, plus specified foreign-exchange rates.
- Since the Costa Concordia accident, fleetwide bookings excluding Costa had declined in the mid- to high-single digits at slightly lower prices; Costa bookings were significantly behind the prior year. Management believed the accident would not have a significant long-term impact, but acknowledged greater effects on European brands.
- Costa Concordia was deemed a constructive total loss. The company wrote off its $515 million carrying value and recorded a $515 million short-term insurance recoverable. It also recognized $29 million of uninsured incident-related costs. Approximately 65% of aggregate claims reserves related to the accident at quarter-end.
- Costa Allegra was withdrawn after fire damage, producing a $34 million impairment charge. Its remaining carrying value was not significant.
- Ibero goodwill and trademark impairment charges totaled $173 million, including $153 million of goodwill and $20 million of trademark impairment, reflecting the Spanish economic environment, slower capacity growth, lower revenues, and lower estimated royalty rates.
- Insurance recoveries, litigation, enforcement actions, regulatory actions, investigations, and other Costa Concordia claims remain subject to significant uncertainty. Management expected future costs but believed additional costs would be substantially recoverable through insurance.
- Principal risks include fuel prices, ship incidents, negative publicity, litigation, regulation, economic conditions, foreign-exchange movements, interest rates, financing availability, travel-industry counterparties, overcapacity, weather, geopolitical events, and contagious disease.
- Management stated that it expected operating cash flow, existing liquidity, committed financing, and access to capital markets to fund capital projects, debt service, working capital, firm commitments, and dividends over the next several years. The company believed it was in compliance with debt covenants.
- Annual capacity growth was expected to be 3.0% in fiscal 2012, 2.8% in 2013, 2.2% in 2014, and 4.7% in 2015, excluding unannounced future orders, acquisitions, retirements, charters, or sales.
Most important facts for investors to verify
- Whether Costa Concordia insurance proceeds and related claims ultimately match the recorded $515 million recoverable and whether uninsured litigation and regulatory costs remain immaterial.
- Booking trends, pricing, occupancy, and brand recovery—particularly for Costa and other European brands.
- Actual fuel prices versus guidance assumptions and the effectiveness and valuation of Brent fuel collars, which cover only a portion of estimated consumption and do not receive hedge accounting.
- Compliance with debt covenants, refinancing of approximately $1.6 billion of current debt obligations, and continued access to committed ship financing.
- Cash generation after capital expenditures and dividends, given the $4.4 billion reported working-capital deficit and reliance on customer deposits and debt refinancing.
- Whether the Ibero impairment indicates broader weakness in European cruise-brand goodwill or trademarks.
- Exposure from $2.0 billion of unhedged euro-denominated newbuild commitments and from foreign-currency, interest-rate, and counterparty risks.