10-QPeriod: Q3 FY2004

CARNIVAL CORP Quarterly Report for Q3 Ended Aug 31, 2004

Filed October 7, 2004For Securities:CCL

Summary

Carnival Corporation & PLC reported strong financial performance for the nine months ended August 31, 2004, with net income significantly increasing to $1.561 billion from $989 million in the prior year. This growth was driven by a substantial rise in revenues, up from $4.901 billion to $7.485 billion, reflecting the full integration of P&O Princess Cruises operations and higher net revenue yields across the fleet. The company experienced robust demand, with a notable increase in passenger ticket revenue and onboard spending. Despite a significant increase in capacity due to new ship deliveries and some operational cost pressures like higher fuel expenses and the impact of hurricanes, Carnival maintained impressive net revenue yields. The company's strong cash flow from operations supports its ongoing new shipbuilding program and other capital expenditures, indicating a positive outlook for continued growth and financial stability.

Key Highlights

  • 1Net income for the nine months ended August 31, 2004, surged to $1.561 billion, a significant increase from $989 million in the same period last year.
  • 2Total revenues for the nine months increased substantially to $7.485 billion, up from $4.901 billion in the prior year, largely due to the full consolidation of P&O Princess Cruises.
  • 3Net revenue yields for the nine months increased by 9.6% compared to pro forma 2003, indicating strong pricing power and demand.
  • 4The company's operating income rose to $1.826 billion for the nine months, up from $1.109 billion in the prior year.
  • 5Capital expenditures were robust, with $2.865 billion invested in property and equipment, primarily for new shipbuilding.
  • 6Cash flow from operations was strong, providing $2.622 billion for the nine months, enabling significant investments and debt repayment.
  • 7The company forecasts continued growth in net revenue yields for the fourth quarter of 2004, despite potential impacts from hurricanes.

Frequently Asked Questions

The primary driver of the significant increase in net income was the full consolidation of P&O Princess Cruises operations for the entire nine-month period in 2004, compared to only a partial period in 2003. This, combined with strong demand leading to higher net revenue yields, substantially boosted profitability.

Despite a significant capacity increase and costs related to hurricanes and office relocation, Carnival managed to achieve only a slight increase in net cruise costs per ALBD on a constant dollar basis compared to pro forma 2003. This was due to economies of scale from higher capacity, synergy savings from integration, and effective cost control.

Carnival Corporation & PLC expected a record increase in revenue yields for the full year 2004. For the fourth quarter, they anticipated net revenue yields to increase by 7% to 9% year-over-year, despite the impact of hurricanes. Earnings per share guidance for the fourth quarter was revised to $0.28 to $0.30 due to hurricane impacts.

The company is involved in ongoing litigation, including class-action lawsuits related to unsolicited facsimile advertisements and environmental investigations concerning wastewater discharge and air emissions from its ships. While the ultimate outcomes are uncertain, Carnival believes it has meritorious defenses. There are also contingent obligations related to lease-out/lease-back transactions, but these are considered remote and largely mitigated by strong credit ratings of financial institutions involved. The Festival Action lawsuit challenging the DLC transaction is considered unlikely to have a material adverse effect.