01—Abstract
Summary
Summary of the 10-Q filed June 24, 2019. Cited figures are marked; the original filing is the authoritative source.
Carnival Corporation & plc reported solid revenue growth for the second quarter and first half of fiscal year 2019, driven by increased capacity and higher onboard spending.
Total revenues for the three months ended May 31, 2019, rose by 11.3% to $4.8 billiona, while six-month revenues increased by 12.1% to $9.5 billion. Despite revenue growth, net income saw a decline. For the three months ended May 31, 2019, net income was $451 million, a decrease from $561 million in the prior year period, resulting in diluted EPS of $0.65 compared to $0.78.
This decline is partly attributed to unfavorable foreign currency impacts and increased operating costs, including higher fuel prices and the effect of adopting new revenue recognition guidance (ASC 606), which grossed up onboard and other revenues and costs. The company continues to invest heavily in its fleet, with significant capital expenditures for new shipbuilding.
Liquidity remains strong, supported by operating cash flows and substantial committed financing facilities. Investors should monitor the impact of increasing capacity, managing operating costs, and navigating foreign currency fluctuations.
02—Key points
Key Highlights
- Total revenues increased by 11.3% to $4.8 billion for the three months ended May 31, 2019, compared to $4.3 billion in the prior year period.
- Net income for the three months ended May 31, 2019, decreased to $451 million from $561 million in the same period last year, resulting in diluted EPS of $0.65 versus $0.78.
- Onboard and other cruise revenues saw a significant increase of 35% ($388 million) driven by the adoption of new revenue accounting guidance (ASC 606) which grossed up these revenues and associated costs.
- Operating costs and expenses increased by 18% ($478 million), significantly impacted by the ASC 606 adoption and higher fuel prices.
- The company's capacity, measured by Available Lower Berth Days (ALBDs), increased by 4.6% for the quarter, primarily due to new ship deliveries.
- Liquidity remains strong, with $14.1 billion in total liquidity at May 31, 2019, including cash, cash equivalents, and available credit facilities.
- Carnival Corporation & plc continues to invest in its fleet with $3.0 billion in capital expenditures for property and equipment during the six months ended May 31, 2019, primarily for new shipbuilding.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Carnival Corp kept $0.09.
- Revenue$4.84B100.0%
- Cost of revenue−$3.16B65.3%
- Gross profit$1.68B34.7%
- Operating costs−$1.16B24.1%
- Operating income$515.0M10.6%
- Interest, other & tax−$64.0M1.3%
- Net income$451.0M9.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed June 24, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $4.84B$4.36B | +11.0% |
| Cost of Revenue | $3.16B$2.68B | +17.8% |
| Gross Profit | $1.68B$1.68B | +0.2% |
| SG&A Expenses | $621.00M$605.00M | +2.6% |
| Operating Expenses | $4.32B$3.80B | +13.8% |
| Operating Income | $515.00M$559.00M | −7.9% |
| Interest Expense | $54.00M$49.00M | +10.2% |
| Net Income | $451.00M$561.00M | −19.6% |
| EPS (Basic) | $0.65$0.79 | −17.7% |
| EPS (Diluted) | $0.65$0.78 | −16.7% |
| Shares Outstanding (Basic) | 691.00M714.00M | −3.2% |
| Shares Outstanding (Diluted) | 693.00M715.00M | −3.1% |
05—Questions
Frequently Asked Questions
What is the primary reason for the decrease in net income despite revenue growth?
The decrease in net income is mainly due to a combination of factors including unfavorable foreign currency exchange rate impacts, higher operating costs such as fuel prices, and the accounting impact of adopting new revenue recognition guidance (ASC 606). This new guidance led to the gross presentation of onboard and other revenues and their associated costs, which increased both top-line revenue and operating expenses.
How is the adoption of ASC 606 affecting the financial statements?
The adoption of ASC 606, which became effective December 1, 2018, requires the gross presentation of shore excursions and other onboard revenues and their associated costs, which were previously presented net. This change significantly increased reported revenues and operating costs, particularly in the 'Onboard and other' categories, but had no impact on operating income or net income as reported after adjustments.
What is the outlook for capacity and future investments?
Carnival expects continued capacity increases, with a 4.5% annual capacity increase projected for 2019 and further increases in subsequent years, driven by new ship deliveries. The company is making substantial investments in its fleet, with a forecast of $6.7 billion in capital expenditures for 2019, primarily for new shipbuilding.
How is the company managing fuel price and foreign currency risks?
Carnival manages fuel price risk by focusing on fuel efficiency, ship maintenance, and technological improvements. For foreign currency risks, the company uses derivative instruments like cross-currency swaps and zero-cost collars to hedge specific exposures, particularly for shipbuilding contracts and net investments in foreign operations. They also aim to naturally offset exposures through operational and financing activities.
06—Continue