10-QPeriod: Q3 FY2010

CARNIVAL CORP Quarterly Report for Q3 Ended Aug 31, 2010

Filed October 1, 2010For Securities:CCL

Summary

Carnival Corporation & PLC reported strong financial results for the nine months ended August 31, 2010, with net income increasing to $1.73 billion from $1.597 billion in the prior year period. Revenue also saw a significant jump, driven by a substantial increase in passenger capacity and improved ticket pricing, particularly in the European market. The company has been actively managing its debt, undertaking new borrowings for vessel financing while also repaying existing debt. Significant capital expenditures are underway for new ship construction, reflecting a commitment to fleet expansion. Despite the positive revenue and income trends, the company faces challenges including increased fuel costs and foreign currency exchange rate fluctuations. However, Carnival has implemented cost reduction programs and is benefiting from economies of scale. The company's liquidity position remains strong, with substantial cash and cash equivalents, as well as available borrowing capacity under its credit facilities, providing confidence in its ability to meet future obligations and fund ongoing investments. Carnival also initiated a significant debt redemption for its 2% Convertible notes, demonstrating proactive balance sheet management.

Financial Highlights

48 data points
Beta

Net Income

$1.30B

EPS (Diluted)

$1.62

Total Assets

$36.85B

Cash & Equivalents

$527.00M

Free Cash Flow

$620.00M

Financial Statements
Beta
Cost of Revenue$2.39B
SG&A Expenses$381.00M
Operating Expenses$3.13B
Operating Income$1.40B
Interest Expense$90.00M
Net Income$1.30B
EPS (Basic)$1.65
EPS (Diluted)$1.62
Shares Outstanding (Basic)789.00M
Shares Outstanding (Diluted)806.00M

Key Highlights

  • 1Net income increased by 8.3% to $1.73 billion for the nine months ended August 31, 2010.
  • 2Total revenues grew by 7.7% to $10.7 billion for the nine months ended August 31, 2010, driven by higher passenger volumes and improved pricing.
  • 3Operating income increased by 7.8% to $2.0 billion for the nine months ended August 31, 2010.
  • 4The company experienced a significant increase in fuel costs, with the fuel cost per metric ton rising from $330 to $489 for the nine-month period.
  • 5Carnival invested heavily in property and equipment, with $2.8 billion in additions to property and equipment for the nine months ended August 31, 2010, primarily for new shipbuilding.
  • 6Liquidity remains robust, with $6.0 billion in liquidity at August 31, 2010, comprising cash, cash equivalents, and available credit facilities.
  • 7Carnival announced the redemption of its 2% Convertible notes for cash on October 25, 2010.

Frequently Asked Questions

Revenue growth was primarily driven by a 7.9% increase in passenger capacity (ALBDs) and an improvement in overall cruise ticket pricing, with a particular strength in North American brand yields. Onboard and other cruise revenues also contributed significantly, bolstered by capacity increases and concessionaire minimum guarantees.

Carnival has actively managed its debt by borrowing under export credit facilities and bank loans for new vessel financing ($806 million borrowed in the nine months ended August 31, 2010) while also repaying $1.1 billion of other long-term debt, including scheduled repayments and early retirements. The company also repaid $341 million and borrowed $89 million under its revolvers and borrowed $300 million in net short-term borrowings. Notably, they initiated the redemption of their 2% Convertible notes.

Key risks and challenges include increasing fuel prices, fluctuations in foreign currency exchange rates (particularly the U.S. dollar against the euro and sterling), general economic conditions affecting discretionary spending, competition, potential operational disruptions (such as adverse weather or disease outbreaks), and compliance with evolving regulations. The company also highlighted potential goodwill impairment for its Ibero brand due to the Spanish economy.

While the filing indicates a significant increase in fuel costs per metric ton, Carnival has not detailed specific financial instruments for hedging fuel price risks. However, they have benefited from cost reduction programs, economies of scale, and a stronger U.S. dollar against the euro and sterling, which have partially offset increased operating expenses. The company also mentioned that net cruise costs excluding fuel per ALBD on a constant dollar basis decreased, suggesting internal cost management efforts.