10-QPeriod: Q1 FY2003

CARNIVAL CORP Quarterly Report for Q1 Ended Feb 28, 2003

Filed April 14, 2003For Securities:CCL

Summary

Carnival Corporation's Q1 2003 filing reveals a mixed financial performance. While total revenues saw a healthy increase of 13.7% year-over-year, driven by a 14.7% expansion in available lower berth capacity, net income experienced a slight decrease from $129.6 million to $126.9 million. This dip in profitability is attributed to a significant increase in operating expenses, up 18.4%, largely due to higher fuel prices, insurance, environmental, and security costs. Despite these cost pressures, the company maintained its occupancy rate at a strong 102.8% and is actively expanding its fleet with multiple new ships on order. The most significant development for investors is the proposed dual-listed company (DLC) transaction with P&O Princess Cruises. This combination, expected to close shortly after the reporting period, aims to create the world's largest cruise vacation group. If completed, the transaction will substantially increase the combined entity's long-term debt and shipbuilding commitments, but management believes the pro forma liquidity and cash flows will be sufficient to manage these obligations. Investors should closely monitor the integration of P&O Princess and the ongoing impact of global economic uncertainties and geopolitical events on booking trends and pricing power.

Key Highlights

  • 1Total revenues increased by 13.7% to $1.03 billion, driven by a 14.7% increase in available lower berth day capacity.
  • 2Net income slightly decreased by 2.1% to $126.9 million, while diluted earnings per share remained stable at $0.22.
  • 3Operating expenses rose significantly by 18.4% to $898.8 million, primarily due to increased fuel, insurance, environmental, and security costs.
  • 4The company is proceeding with a major dual-listed company (DLC) transaction with P&O Princess Cruises, which is expected to create the largest cruise operator globally.
  • 5Capital expenditures for shipbuilding and fleet expansion remain substantial, with $112 million spent in the quarter and significant future commitments.
  • 6Liquidity remains strong with $2.3 billion in available resources, though Moody's has recently lowered the company's senior unsecured debt rating.
  • 7Booking trends for the remainder of fiscal 2003 are negatively impacted by concerns over the war with Iraq and global economic uncertainty, leading to lower pricing and occupancy projections.

Frequently Asked Questions

The primary driver for the revenue increase was the 14.7% expansion in available lower berth day capacity, indicating growth in the company's fleet size and operational scale.

Net income decreased primarily due to a significant increase in operating expenses, which rose by 18.4%. This was driven by higher fuel prices, increased insurance, environmental, and security costs, and the front-loading of advertising expenses.

The proposed dual-listed company (DLC) transaction with P&O Princess Cruises is expected to create the world's largest cruise vacation group. If completed, it will combine the operations and fleets of both companies, significantly increasing scale but also increasing debt and shipbuilding commitments. Management believes the combined entity will maintain sufficient liquidity and cash flows.

The company expressed concerns about the impact of the war with Iraq and global economic uncertainty on future booking trends and pricing for the remainder of fiscal 2003. This has led to expectations of lower revenue yields compared to the prior year.