9Carnival Corporation & plc Reports Third Quarter Earnings

Carnival Corporation & plc (NYSE/LSE: CCL; NYSE: CUK) reported net income of $1.3 billion, or $1.62 diluted EPS, on revenues of $4.4 billion for its third quarter ended August 31, 2010. Net income for the third quarter of 2009 was $1.1 billion, or $1.33 diluted EPS, on revenues of $4.1 billion.

Carnival Corporation & plc Chairman and CEO Micky Arison noted that earnings per share for the third quarter 2010 increased 22 percent over 2009 and were just 3 percent shy of third quarter record profits.  The third quarter 2010 operating results were significantly better than anticipated in the company’s June guidance due to the combination of higher than expected revenue yields and lower than expected unit costs. 

Commenting on the third quarter, Arison said, “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.”  

Key metrics for the third quarter 2010 compared to the prior year were as follows:

•  On a constant dollar basis net revenue yields (net revenue per available lower berth day) increased 6.2 percent for 3Q 2010, which was slightly above the company’s June guidance, up 5 to 6 percent. Net revenue yields in current dollars increased 2.5 percent due to unfavorable currency exchange rates. Gross revenue yields increased only 1.2 percent in current dollars driven by lower air transportation revenue.

•  Excluding fuel, net cruise cost per available lower berth day (“ALBD”) declined 2.4 percent in constant dollars, which was significantly better than June guidance, up 1 to 2 percent.

•  Including fuel, net cruise costs per ALBD increased 0.6 percent on a constant dollar basis (decreased 1.8 percent in current dollars). Gross cruise costs per ALBD decreased 2.8 percent in current dollars.

•  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.

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