Carnival Corporation & plc announced financial results for the second quarter ended May 31, 2019 and provided guidance for the third quarter and full year 2019.
Key Highlights
- U.S. GAAP net income of $451 million, or $0.65 diluted EPS, for the second quarter of 2019, compared to U.S. GAAP net income for the second quarter of 2018 of $561 million, or $0.78 diluted EPS.
- Second quarter 2019 adjusted net income of $457 million, or $0.66 adjusted EPS, compared to adjusted net income of $489 million, or $0.68 adjusted EPS, for the second quarter of 2018.
- Adjusted net income excludes net charges of $6 million for the second quarter of 2019 and net gains of $72 million for the second quarter of 2018 relating to unrealized gains on fuel derivatives and other net gains.
- Total revenues for the second quarter of 2019 were $4.8 billion, higher than the $4.4 billion in the prior year.
- Gross cruise revenues of $4.8 billion compared to $4.3 billion for the prior year.
- In constant currency, net cruise revenues of $3.8 billion compared to $3.6 billion, an increase of 5.2 percent.
- The company expects full year 2019 adjusted earnings per share to be in the range of $4.25 to $4.35, compared to March guidance of $4.35 to $4.55, due to:
- $0.08 to $0.10 per share unfavorable impact resulting from voyage disruptions related to Carnival Vista,
- $0.04 to $0.06 per share unfavorable impact resulting from the U.S. government’s policy change on travel to Cuba,
- $0.10 to $0.12 per share unfavorable impact resulting from lower net revenue yields in the second half of the year,
- partially offset by lower fuel consumption and the net favorable impact from changes in fuel prices and currency exchange rates compared to March guidance.
Second Quarter 2019 Results
Carnival Corporation & plc President and Chief Executive Officer Arnold Donald stated, “Second quarter earnings included revenue growth from higher capacity and improved onboard spending, more than offset by a drag from fuel and currency compared to the prior year. Second quarter adjusted earnings were better than March guidance by $0.08per share substantially due to the timing of expenses between quarters.”
Key information for the second quarter of 2019 compared to the second quarter of 2018:
- Gross revenue yields (revenue per available lower berth day or “ALBD”) increased 5.6 percent. In constant currency, net revenue yields increased 0.6 percent, better than March guidance of approximately flat.
- Gross cruise costs including fuel per ALBD increased 9.6 percent. In constant currency, net cruise costs excluding fuel per ALBD decreased 1.3 percent, better than March guidance of up approximately 1.0 percent, substantially due to the timing of expenses between quarters.
- Changes in fuel prices and currency exchange rates decreased earnings by $0.09 per share.
Highlights from the second quarter included Princess Cruises’ announcement that MedallionNet™, its fast and reliable Wi-Fi at sea, will be enjoyed by guests sailing on more than half of its fleet by the end of 2019. Carnival Sunrise and Carnival Freedom underwent multi-million-dollar renovations which added a variety of exciting experiences, including enhanced dining options, expanded retail spaces and more. Carnival Cruise Line partnered with world-renowned chef and restaurateur Emeril Legasse on his first-ever seagoing restaurant aboard Carnival Cruise Line’s most innovative ship, Mardi Gras. Additionally, AIDA was named Germany’s most trustworthy cruise company by Readers Digest Trusted Brands consumer survey and Carnival Corporation was named one of America’s Best Large Employers by Forbes Media.
Outlook
At this time, cumulative advanced bookings for the remainder of the year are slightly ahead of the prior year at prices that are in line with the prior year on a comparable basis. Pricing on bookings taken since March have been running behind the prior year on lower booking volumes in part because the company had less inventory remaining for sale. Cumulative advanced bookings for the full year 2020 are well ahead at prices that are in line compared to 2019.
Donald added, “Recent booking trends have been impacted by ongoing geopolitical and macroeconomic headwinds affecting our Continental European brands. We continue to expect higher yields in our North America and Australia brands offset by lower yields in our Europe and Asia brands for the remainder of the year.”
Voyage disruptions related to Carnival Vista are expected to have a financial impact of approximately $0.08 to $0.10 per share.
The U.S government’s policy change on travel to Cuba has a financial impact of approximately $0.04 to $0.06 per share. While the company was able to quickly adjust its itineraries to provide guests with attractive alternative vacation experiences, the suddenness of the regulatory change to this high yielding destination has led to a near-term impact on revenue yields.
In addition, the company is adjusting its full year net revenue yield guidance by 50 basis points mainly due to lower ticket prices forecasted in the second half of the year, resulting primarily from ongoing headwinds faced by the company’s Continental European brands. The decline in revenue yields is mostly offset by $0.02 per share impact from lower fuel consumption and a net favorable $0.08 per share impact from changes in fuel prices and currency exchange rates since the time of March guidance.
Based on current booking trends, the regulatory change and voyage disruptions, the company now expects full year 2019 constant currency net cruise revenues to be up approximately 4.5 percent, with capacity growth of approximately 4.5 percent. Net revenue yields in constant currency are expected to be in line with the prior year compared to March guidance of up approximately 1.0 percent. Net revenue yields in constant currency are expected to be flat to down slightly for the third quarter and lower for the fourth quarter when compared to the prior year. The company now expects full year net cruise costs excluding fuel per ALBD in constant currency to be up approximately 0.7 percent compared to the prior year. The 0.2 percent increase compared to March guidance is due to the aforementioned voyage disruptions.
Taking the above factors into consideration, the company expects full year 2019 adjusted earnings per share to be in the range of $4.25 to $4.35, compared to March guidance of $4.35 to $4.55 and 2018 adjusted earnings per share of $4.26.
Donald commented, “Over the past five years we have demonstrated our ability to overcome multiple headwinds and deliver strong operational improvement. This year our growth has been hampered by a confluence of events, which we are focused on mitigating. Generating over $5 billion of cash flow and with a robust business model, our business is strong and we remain confident over time we will deliver double-digit earnings growth and growth in return on invested capital.”