Finance Friday: Carnival Q3 Earnings

Carnival Corporation, the world largest cruise line, recently posted their 3rd Quarter earnings report. Lets take a look at the numbers.

Total revenue was $4.4 billion. Up from $4.1 billion last year.

Total net income was $1.3 billion yielding $1.62 per share. Up from $1.1 Billion last year.

These numbers came as a slight surprise as they were better than last June’s guidance for the quarter.

Carnival Corp. chairman and C.E.O., and, in this writers opinion the smartest man in the industry, Micky Arison after the break.

Despite ongoing economic concerns, cruise ticket prices remained strong close to sailing rewarding consumers that booked early. We enjoyed robust demand across all products during our seasonally strong summer period. Our North American brands experienced a significant rebound in peak season revenue yields, increasing more than 10 percent over weak 2009 comparisons.  Revenue yields for our European brands, which absorbed an 8 percent capacity increase, were up 1 percent (constant dollars) cycling relatively strong performance in the prior year.  At the same time, our ongoing cost control efforts continued to bear fruit as we drove down operating, selling and administrative costs globally.

Micky Arison, far right, stands by the big three. Sorry Cav’s fans.

The cruise industry accountants use some very unique metrics. The following stats you will not find in any other industry.(The airline industry is a close one)

• Net revenue per available lower berth day: increase of 6.2%, just ahead of the 5-6% from June’s guidance.
• Net revenue yields in current dollars: increase of 2.5 percent. Can be attributed to horrible exchange rates.
• Gross revenue yields: increase of 1.2 percent. Carnival attributes this to lower air transportation revenue.
• Net cruise cost per available lower berth day[w/o fuel]: declined 2.4 percent. (This is a good thing.)
• Net cruise cost per available lower berth day[w/ fuel]: increase of 0.6 percent. Obviously this is from high bunker costs.
• Gross cruise costs per available lower berth day: decrease of 2.8 percent. Once again this is a good thing.

If the above likes like Latin to you and you are completely lost, notice how Carnival remains strong in this horrible economy. I expect Royal Caribbean’s numbers to be like Carnival’s and show some slight progress being made. As for NCL, its anybody’s guess.

Its been said time and time again, people don’t need to cruise. By Carnivals positive numbers, its still showing that people are willing to pay for vacations now. It’s a promising sign but there still is a long road ahead!

Fuel prices increased 17 percent to $473 per metric ton for 3Q 2010 from $405 per metric ton in 3Q 2009 but were slightly lower than June guidance of $493 per metric ton.

The third quarter 2010 was impacted by two unusual items, which reduced earnings by $24 million ($0.03 per share) – a $41 million charge to operating expense relating to a billing from the British Merchant Navy Officers Pension Fund partially offset by a $17 million litigation settlement.

Continuing with its strategic growth initiatives, the company took delivery of Holland America Line’s 2,106-passenger Nieuw Amsterdam, and signed a new ship order with Germany’s Meyer Werft for the construction of a 2,192-passenger cruise ship for AIDA Cruises to be delivered spring 2013. This marks the seventh new ship ordered for the flourishing German cruise market in the past six years.

2010 Outlook 

Since June, booking volumes for the remainder of 2010 and the first half 2011 are running ahead of the prior year at prices in line with prior year levels.  At this time, cumulative advance bookings for the remainder of the year and the first half 2011 are at higher prices (constant dollars) with occupancies for the fourth quarter 2010 in line with the prior year and for the first half 2011 slightly behind last year.

Arison noted, “The booking environment has remained solid and we expect revenue yields to continue to improve in 2011 and beyond as the economy regains its footing. Consumers continue to embrace vacations as a much needed escape from the rigors of daily life, while cruising remains an increasingly attractive option for those seeking greater value for their vacation dollar.”    

The company expects full year 2010 net revenue yields, on a constant dollar basis, to increase 2.5 percent, in line with its June guidance of an increase of 2 to 3 percent. However, currency exchange rates have moved favorably since June guidance was provided. As a result, the company now expects net revenue yields on a current dollar basis to increase 1 percent for the full year 2010 compared to 2009.

Based primarily on lower costs achieved in the third quarter, the company now expects net cruise costs excluding fuel per ALBD for the full year 2010 to be down 4  percent on a constant dollar basis, which is better than its June guidance of down 2.5 to 3.5 percent. Since June guidance, favorable changes in currency exchange rates have increased earnings by $30 million. In addition, a decline in fuel prices has reduced forecasted fuel costs by $27 million. Based on current spot prices, fuel costs for full year 2010 are now expected to increase $410 million compared to 2009, costing an additional $0.51 per share.

Taking all the above factors into consideration, the company now forecasts full year 2010 fully diluted earnings per share to be in the range of $2.48 to $2.52, which is above June guidance of $2.25 to $2.35 and 2009 earnings of $2.24 per share.

Fourth Quarter 2010 

Fourth quarter constant dollar net revenue yields are expected to increase 2.5 to 3.5 percent (down 1 to 2 percent on a current dollar basis) compared to the prior year. Net cruise costs excluding fuel per ALBD for the fourth quarter are expected to be 1 to 2 percent lower on a constant dollar basis (down 5 to 6 percent on a current dollar basis). For the fourth quarter, unfavorable currency exchange rates and fuel costs are expected to impact earnings by $60 million compared to the prior year, costing an additional $0.07 per share.

Based on the above factors and using current fuel prices and currency exchange rates, the company expects earnings for the fourth quarter 2010 to be in the range of $0.32 to $0.36 per share, compared to $0.24 per share in 2009.

During the fourth quarter Cunard Line’s 2,092-passenger Queen Elizabeth will be christened by Her Majesty Queen Elizabeth II in a much anticipated ceremony in Southampton, England. This will be the sixth ship to be delivered this year furthering the company’s strategy to expand its global presence.