Carnival Corp. Reports Major Drop in Second Quarter Net Income
By James Shillinglaw
June 22, 2012 2:32 PM
Carnival Corporation & plc reported U.S. GAAP net income, which includes unrealized losses on fuel derivatives of $145 million, was $14 million, compared with net income of $206 million in the second quarter last year. At the same time, Carnival also reported non-GAAP net income of $159 million for the second quarter. Overall revenues for the fiscal second quarter were $3.5 billion compared to $3.6 billion for the same period in 2011.
Carnival Corporation & plc Chairman and CEO Micky Arison, whose Miami Heat team won the National Basketball Association championship just hours before his company reported second quarter earnings, noted that the company’s non-GAAP earnings were better than anticipated from Carnival’s March guidance due primarily to a combination of higher than expected revenue yields and lower than expected costs, partly attributed to non-recurring items, in the second quarter. Those numbers would seem to indicate that as a whole Carnival Corp., which owns Costa Cruises, is handling the impact of the Costa Concordia sinking, though Costa pricing and booking volumes are still lagging, as well as the effect of higher fuel prices.
“Cruise ticket prices (excluding Costa) held firm close to sailing which, combined with stronger than expected onboard revenues, drove yields above prior year levels,” Arison said. “Our North American brands performed well, achieving a 3 percent revenue yield improvement compared to the prior year, which more than offset slightly lower yields for our Europe, Australia and Asia brands (excluding Costa). In addition, continued focus on cost controls and fuel consumption helped to mitigate the impact of higher fuel prices in the quarter.”
Second quarter results included $17 million, or $0.02 per share, of insurance proceeds in excess of net book value which were previously expected to be received in the third quarter, and $17 million, or $0.02 per share, received from a litigation settlement. On a constant dollar basis net revenue yields (net revenue per available lower berth day or ALBD) decreased 1.4 percent for 2Q 2012, which was better than March guidance, down 2.5 to 3.5 percent. Excluding Costa, net revenue yields increased 1.1 percent for 2Q 2012, which was also higher than March guidance of flat to down slightly. Gross revenue yields decreased 4.2 percent in current dollars.
Net cruise costs per ALBD excluding fuel and non-recurring items decreased 2.2 percent in constant dollars, better than March guidance of flat to down 1.0 percent. Gross cruise costs per ALBD, including fuel and non-recurring items, decreased 3.6 percent in current dollars. Fuel prices increased 12 percent to $756 per metric ton for the second quarter 2012 from $673 per metric ton in 2Q 2011, costing the company an additional $71 million. Fuel prices were slightly lower than March guidance of $772 per metric ton.
In March, Carnival entered into zero cost collars for an additional 19 percent of its estimated fuel consumption for the second half of fiscal 2012 through fiscal 2013, bringing the total covered to 38 percent over this period. The company also has zero cost collars in place that cover 19 percent of its estimated fuel consumption for fiscal 2014 and 2015.
Three new ships were delivered during the second quarter --Costa Fascinosa, AIDAmar and Carnival Breeze -- each featuring a variety of innovations that have generated strong consumer and media interest, according to Carnival. Since March, fleetwide booking volumes have continued to improve and are running well ahead of the prior year at lower prices, Carnival said. For the last seven weeks, booking volumes excluding Costa have increased 8 percent versus the prior year, while booking volumes for Costa over the same time period are up 25 percent. For the remainder of the year, cumulative advance bookings excluding Costa are three occupancy points behind the prior year at slightly lower prices while cumulative advance bookings for Costa are at lower occupancies and lower prices compared with the prior year.
"The increase in booking volumes indicates that a progressive recovery is well underway and we are catching up following the slowdown in bookings during wave season, our peak booking period,” Arison said. “The attractive pricing we have in the marketplace is clearly stimulating demand, especially for the Costa brand. We are pleased to see the resurgence in consumer demand for Costa, which is a testament to the brand's long-standing reputation for quality built over many decades.”
Excluding Costa, Carnival forecasts full year 2012 net revenue yields, on a constant dollar basis, to be down slightly. Including Costa, the company expects a decline in net revenue yields of 3 to 4 percent (constant dollars). The company has slightly reduced the mid-point of its 2012 yield guidance as the price incentives required to drive the booking volumes needed to close the occupancy gap was more than had been previously anticipated for the second half of the year. Full year 2012 revenue yields for the North American brands are expected to be in line with the prior year. Full year 2012 revenue yields for the European brands, excluding Costa, are expected to be lower than the prior year.
Lower net revenue yield expectations have been offset by greater than anticipated cost reductions. The company expects net cruise costs, excluding fuel, per ALBD for the full year 2012 to be down slightly compared with the prior year on a constant dollar basis. In addition, lower fuel prices (net of forecasted realized losses on fuel derivatives) partially offset by changes in currency exchange rates are expected to increase full year 2012 earnings by $0.30 per share compared to March guidance.
Taking all the above factors into consideration, the company forecasts full year 2012 non-GAAP diluted earnings per share to be in the range of $1.80 to $1.90, compared to the March guidance range of $1.40 to $1.70 per share and 2011 non-GAAP earnings of $2.42 per share.
“The long term fundamentals of our business remain sound,” Arison said. “As we look toward the future, we are excited by the prospect for continued global expansion beyond our established markets in North America and Western Europe. We are pursuing multiple opportunities to develop emerging cruise markets including positioning a second Costa ship in China and through a series of Princess cruises dedicated to the Japanese market in 2013."
Carnival Corporation & plc owns Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn, AIDA Cruises, Costa Cruises, Cunard, Ibero Cruises, P&O Cruises (Australia) and P&O Cruises (UK). Together, these brands operate 101 ships totaling 204,000 lower berths with seven new ships scheduled to be delivered between March 2013 and March 2016.