It only took until the second paragraph of Carnival’s latest SEC filing for the word Concordia to be brought up. For the first Quarter Carnival is reporting an expense of $29 million including a $10 million insurance deductible. They also recorded an insurance recoverable of $515 million, which essentially wrote off the value. They deemed it a constructive total loss. Basically this means the ships is totaled. There is the real possibility she may never sail again. Strange given that a significant portion of the ship isn’t even wet.
Other interesting fallout: Carnival revised their long term outlook for 2012. They dropped full year earnings from originally $2.55 to $2.85 in December, then to $2.07 to $2.34 in January and now to $1.55 per share. Excluding Costa, bookings are up, but still behind last year. Including Costa, they are significantly behind. They appeared to be hanging on by a thread with only the Concordia tragedy, now that they have the Allegra fiasco, they appear to be on life support. Perhaps a time to end the Costa Brand?
Carnival’s full Q1 report is below after the jump:
Carnival Corporation & plc announced non-GAAP net income of $13 million, or $0.02 diluted earnings per share for the first quarter of 2012. Reported U.S. GAAP net loss was $139 million, or $0.18 diluted loss per share, which includes a non-cash write down for Ibero Cruises’ ("Ibero") goodwill and trademark assets of $173 million and net unrealized gains on fuel derivatives of $21 million. Net income for the first quarter of 2011 was $152 million, or $0.19 diluted EPS. Revenues for the first quarter of 2012 increased to $3.6 billion from $3.4 billion for the prior year.
First quarter 2012 results reflect Costa Concordia incident expenses of $29 million, including a $10 million insurance deductible related to third party personal injury liabilities. During the first quarter of 2012, the company also recorded an insurance recoverable of $515 million (euro 384 million), which offset the write off of the net carrying value of Costa Concordia as the ship has been deemed to be a constructive total loss.
Carnival Corporation & plc Chairman and CEO Micky Arison noted, "All of us at Carnival Corporation & plc are deeply saddened by the Costa Concordia tragedy. Our hearts go out to everyone affected, particularly the families of the deceased and missing. The global cruise industry has an outstanding safety record and every one of our brands is committed to the well-being of our guests and crew. Immediately following the Costa Concordia accident we ordered a thorough review, with the help of industry-leading experts, to understand what happened as well as to conduct an extensive audit of all safety and emergency response procedures across all of our cruise lines. We will work tirelessly to understand what went wrong, and make sure it never happens again."
Key metrics for the first quarter 2012 compared to the prior year were as follows:
On a constant dollar basis net revenue yields (net revenue per available lower berth day, "ALBD") increased 2.9 percent for 1Q 2012 (up 3.7 percent excluding Costa), which was higher than the company’s December guidance, up 1.5 to 2.5 percent. Gross revenue yields increased 1.0 percent in current dollars.
Net cruise costs excluding fuel per ALBD increased 6.4 percent in constant dollars, higher than the December guidance, up 3.5 to 4.5 percent, due to a $34 million impairment charge related to Costa Allegra and the above referenced incident related expenses. As previously disclosed, the remaining increase from the prior year was primarily due to the higher number of dry-dock days. Gross cruise costs including fuel per ALBD in current dollars increased 6.6 percent.
Fuel prices increased 30 percent to $707 per metric ton for 1Q 2012 from $543 per metric ton in 1Q 2011, costing the company an additional $137 million. They were also higher than December guidance of $652 per metric ton, costing an additional $46 million.
The company recorded $173 million of charges related to Ibero goodwill and trademark impairments primarily as a result of slower than anticipated Ibero capacity growth due to the current state of the Spanish economy.
During the first quarter, the company entered into zero cost collars for an additional 10 percent of its estimated fuel consumption for the second half of 2012 through fiscal 2015, bringing the total to approximately 20 percent over the same time period. The company recognized $21 million of net unrealized gains on its portfolio of fuel derivatives during 1Q 2012. For further information on the company’s fuel derivatives program see "Fuel Derivatives" below.
The company’s expectations for 2012 will be affected by the direct and indirect financial consequences of the Costa Concordia incident. At this time, cumulative advance bookings, excluding Costa, for the remainder of 2012 are approximately 3 occupancy points behind the prior year with prices slightly higher than last year’s levels (constant dollars). Since the date of the Costa Concordia incident in mid-January through February 26, fleetwide booking volumes, excluding Costa, have shown improving trends but are still running high single digits behind the prior year at slightly lower prices. There has been less impact on the company’s North American brands than European brands. Booking volumes for Costa during the same period are running significantly behind the prior year at lower prices, however, Costa has curtailed virtually all of its marketing activities during this period.
Looking forward, Arison stated, "Our base of business for 2012 is solid and booking volumes have gradually improved, which we believe is a testament to consumer confidence in the cruise industry’s long-standing record of exceptional safety. Despite the slowdown in bookings, all of our North American brands are still expecting a modest yield improvement in 2012 while our European brands, excluding Costa, are expecting to have slightly lower yields due in part to the slowing European economies. Overall, based on current pricing trends, any consumers holding out for deeper than normal discounts may be disappointed." Arison also noted that the company’s cash flow remains strong and is expected to approach $3.3 billion in 2012 (including net insurance proceeds), which is sufficient to fund this year’s capital expenditure requirements and expected dividend distributions without the need for additional financing.
Excluding Costa, the company forecasts full year 2012 net revenue yields, on a constant dollar basis, to be in line with the prior year. Including Costa, the company forecasts a decline in net revenue yields (constant dollars) of 2 to 4 percent. In order to maintain an orderly market, Costa has adopted a strategy of minimizing discounting and, if necessary, operating at reduced occupancy levels. Consequently, much of Costa’s anticipated yield decline is expected to result from lower occupancy levels.
The company continues to expect net cruise costs excluding fuel per ALBD for the full year 2012 to be in line with the prior year on a constant dollar basis. Based on the current spot prices for fuel, fuel costs for the full year 2012 are expected to increase $407 million compared to 2011, costing an additional $0.52 per share. At current exchange rates, full year 2012 net income is expected to be reduced by $57 million or $0.07 per share compared to 2011.
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 $1.40 to $1.70, compared to 2011 non-GAAP earnings of $2.42 per share and the December guidance range of $2.55 to $2.85 per share.
Compared to its December guidance, the company has reduced the midpoint of its earnings expectations by $1.15 per share, of which $0.65 results from a decline in earnings for the Costa brand. The balance is due to reduced expectations for the remainder of the company, comprised of a $0.40 impact due to changes in fuel prices and currency exchange rates and $0.10 from earnings (excluding fuel and currency).
Arison stated, "Our company is resilient and we will continue to work through this challenging period. We have every confidence that we will restore consumer faith in the Costa brand and the excellent reputation Costa’s management team has built for the organization which has a deep-rooted Italian heritage spanning more than 60 years. Carnival Corporation & plc expects to carry nearly 10 million guests on its global fleet this year and the long-term fundamentals of our business remain strong as consumers continue to place tremendous importance on quality and value when making vacation decisions. Based on our solid operating cash flow, strong balance sheet and high investment grade credit ratings we are well positioned for the future and remain confident in our long-term outlook."
Second Quarter 2012 Outlook
Second quarter constant dollar net revenue yields, excluding Costa, are expected to be flat to down slightly (decrease 2.5 to 3.5 percent compared to the prior year, including Costa). Net cruise costs excluding fuel per ALBD for the second quarter are expected to be flat to down 1.0 percent on a constant dollar basis compared to the prior year. Fuel costs for the second quarter are expected to increase $85 million compared to the prior year, costing an additional $0.11 per share.
Based on the above factors, the company expects non-GAAP diluted earnings for the second quarter 2012 to be in the range of $0.05 to $0.09 per share versus 2011 non-GAAP earnings of $0.26 per share.
During the second quarter, the company will take delivery of all three of its new ships for 2012, Costa Cruises’ 2,984-passenger Costa Fascinosa, AIDA Cruises’ 2,194-passenger AIDAmar and Carnival Cruise Lines’ 3,690-passenger Carnival Breeze