10-QPeriod: Q2 FY2019

CARNIVAL CORP Quarterly Report for Q2 Ended May 31, 2019

Filed June 24, 2019For Securities:CCL

Summary

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 billion, 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.

Financial Highlights

53 data points
Beta

Revenue

$4.84B

34.7% Gross Margin

Net Income

$451.00M

9.3% Net Margin

EPS (Diluted)

$0.65

Total Assets

$44.51B

Cash & Equivalents

$1.20B

Free Cash Flow

$1.16B

Financial Statements
Beta
Revenue$4.84B
Cost of Revenue$3.16B
Gross Profit$1.68B
SG&A Expenses$621.00M
Operating Expenses$4.32B
Operating Income$515.00M
Interest Expense$54.00M
Net Income$451.00M
EPS (Basic)$0.65
EPS (Diluted)$0.65
Shares Outstanding (Basic)691.00M
Shares Outstanding (Diluted)693.00M

Key Highlights

  • 1Total 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.
  • 2Net 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.
  • 3Onboard 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.
  • 4Operating costs and expenses increased by 18% ($478 million), significantly impacted by the ASC 606 adoption and higher fuel prices.
  • 5The company's capacity, measured by Available Lower Berth Days (ALBDs), increased by 4.6% for the quarter, primarily due to new ship deliveries.
  • 6Liquidity remains strong, with $14.1 billion in total liquidity at May 31, 2019, including cash, cash equivalents, and available credit facilities.
  • 7Carnival 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.

Frequently Asked Questions

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.

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.

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.

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.