This is a summary of the third quarter fiscal 2008 earnings call conducted by Carnival Corp. (CCL) on September 18, 2008.
Management:
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Vice Chairman and COO: Howard Frank
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SVP and CFO: David Bernstein
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Chairman and CEO: Micky Arison
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VP of IR: Beth Roberts
Key Investor Issues:
- Net income for the quarter fell to $1.33 billion, or $1.65 per share, from $1.38 billion, or $1.67 per share, a year ago.
- Revenue rose 11% to $4.81 billion from $4.32 billion a year ago, as North American brands were bolstered by strong demand for Caribbean cruises.
- Net revenue yield increased 4.1% in the quarter, or 1.3% on a constant dollar basis. - Carnival raised its outlook for 2008 earnings per share to a range of $2.79 to $2.81, compared with its previous forecast of $2.70 to $2.80.
- Fourth-quarter earnings per share are expected to range from 36 cents to 38 cents, down from 44 cents in the prior year period.
Third Quarter Highlights:
For the third quarter, earnings per share were $1.65 compared to $1.67 for the prior year. EPS for the third quarter came in above the midpoint of the June guidance by $0.08 per share. This was driven primarily by three things:
- First, lower than expected fuel consumption worth $0.02 per share, as the company’s brands continue to find ways to operate their ships more efficiently.
- Second, lower than expected SG&A worth $0.03 per share of which $0.02 is timing and is expected to reverse itself in the fourth quarter.
- Third, a final insurance settlement related to the damage done to the company’s port facility in Cozumel by Hurricane Wilma in 2005 worth $0.02 per share. This facility is expected to reopen next month.
Capacity increased 8.8% for the third quarter with the vast majority of the increase going to the European brands.
- The European brands grew 24%, while the North American brands grew 1.5%.
- Net revenue yields in current dollars increased 1.4% in the third quarter versus the prior year.
In the net cruise passenger ticket yields, the company saw yield improvement of 5.2% in current dollars and 2.2% in local currency.
The North American brands were up 3.4% driven by the Caribbean, Mexico and other exotic itinerary. The European brands, excluding Ibero Cruises joint venture which the company began consolidating in the fourth quarter of last year, experienced 1.8% lower local currency passenger ticket yields versus some very strong comparisons from the prior year.
Given the 24% capacity increase for the European brands this year and the increasing competition from other companies in the European marketplace, the company was expecting to see overall flattish yields for the year and that is still the case. As to Ibero, Carnival did experience some soft pricing during the third quarter, as a result of the difficult economic environment in Spain.
For net onboard and other yields, the company reported flat yields in current dollars for the yield decline of 2.1% in local currency.
However, mix accounts for 0.7% of the decline as the European brands, which have always had lower onboard spending, are growing faster than the North American brands.
About 0.6% of the decline results from Ibero Cruises, which was not included in the results last year as they were consolidated beginning in the fourth quarter after Carnival closed the joint venture. Therefore, on an apples-to-apples basis, the decline in yields year-over-year is only 0.8% in local currency with declines in most of the company’s brands.
Cruise costs per available lower berth day for the third quarter in local currency are up 12.6%, driven primarily by fuel prices.
Fuel prices this year were 77% higher, costing Carnival an additional $230 million or $0.28 per share. Excluding fuel and local currency, the cruise costs per available berth day were essentially flat.
The cruise cost per available berth day for the full year in current dollars is expected to be a 9.5% to 10% increase. However, excluding fuel and local currency, it will be down slightly.
Based on the current spot prices for fuel, using Monday''s closing prices, fuel prices for the full year are projected to be $573 per metric ton for 2008 versus $361 per metric ton in 2007, costing the company an additional $678 million or $0.83 per share.
Overall for 2008, the company continues to forecast controllable expense unit costs, excluding fuel and currency down slightly, exceeding the long-term target of unit cost growth between flat to one half of the rate of inflation, which continues to be a credit to the brands, given the significant inflationary pressures in crew wages, crew travel, freight and other areas.
