Carnival Corporation has reported third quarter 2023 earnings and provides an outlook for the full year and fourth quarter 2023.

Highlights:

• U.S. GAAP net income of $1.07 billion, or $0.79 diluted EPS, and adjusted net income of $1.18 billion, or $0.86 adjusted EPS, exceeded the June guidance range.
• Adjusted EBITDA of $2.22 billion also exceeded the June guidance range (see “Non-GAAP Financial Measures” below).
• Third quarter revenues hit an all-time high of $6.9 billion.
• Continued strength in close-in demand enabled the company to increase its net per diems guidance for full year 2023 by one percentage point to up approximately 7.0 percent compared to 2019 (in constant currency).
• Booking volumes during the third quarter and the month of September continued at significantly elevated levels.
• The company’s cumulative advanced booked position for full year 2024 is well above the high end of the historical range at higher prices (in constant currency) than 2023 levels.
• Total customer deposits reached a third quarter record of $6.3 billion.
• The company now expects fuel consumption per available lower berth day (“ALBD”) for full year 2023 to be nearly 16 percent lower than 2019, better than previously expected.
• The company reduced its debt by nearly $4 billion from its peak in the first quarter of 2023 and ended the third quarter with $5.7 billion of liquidity.

“We delivered over $1 billion to the bottom line with revenue reaching an all-time high,” commented Carnival Corporation & plc’s Chief Executive Officer Josh Weinstein. “Both revenue and earnings significantly exceeded expectations this quarter enabling us to take up expectations for the year.”

Weinstein continued: “The outperformance was driven by strength in demand, with both our North America and Australia segment and Europe segment equally outperforming expectations. It is gratifying to see the power of our portfolio deliver, as our continental European brands have stepped up nicely. Our demand generation efforts are working across all regions, as we have consistently been achieving quarterly net per diems well in excess of 2019 levels, while closing the occupancy gap by 11 points over the course of the year.”

Weinstein added: “I continue to be encouraged with our revenue trajectory heading into next year as we see no signs of slowing from our consumers.”

Third Quarter 2023 Results

• For the first time since the resumption of guest cruise operations, U.S. GAAP net income turned positive, generating $1.07 billion, or $0.79 diluted EPS, marking a significant milestone. Adjusted net income of $1.18 billion, or $0.86 adjusted EPS, exceeded the June guidance range of $0.95 billion to $1.05 billion.
• Adjusted EBITDA of $2.22 billion also exceeded the June guidance range of $2.05 billion to $2.15 billion.
• Third quarter revenues hit an all-time high of $6.9 billion.
• While gross margin yields were down compared to 2019, net yields (in constant currency) exceeded strong 2019 levels (see “Non-GAAP Financial Measures” below).
  • Occupancy in the third quarter of 2023 was 109 percent, better than the company’s expectations and a return to historical levels.
  • Gross margin per diems were down compared to 2019. Net per diems (in constant currency) exceeded 2019 levels, overcoming headwinds from the removal of St. Petersburg, Russia as a marquee destination and were approximately one percentage point above the midpoint of the June guidance range (see “Non-GAAP Financial Measures” below).
• Cruise costs per ALBD increased 8.9 percent as compared to the third quarter of 2019. Adjusted cruise costs excluding fuel per ALBD (in constant currency) increased 15 percent compared to the third quarter of 2019, in line with June guidance (see “Non-GAAP Financial Measures” below).
• Total customer deposits reached a third quarter record of $6.3 billion, surpassing the previous third quarter record of $4.9 billion (as of August 31, 2019), by 28 percent.

Bookings

Booking volumes during the third quarter continued at significantly elevated levels, setting a new third quarter record for total bookings during the quarter.

“We are maintaining strong momentum and continuing to build demand through our improved commercial execution. Booking volumes during the quarter were running nearly 20 percent above 2019 levels and multiples of our capacity growth, which has continued into September. This has helped us extend the booking curve even further, with our North American brands exceeding historical highs and our European brands essentially achieving pre-pause levels,” said Weinstein.

The cumulative advanced booked position for full year 2024 is well above the high end of the historical range at higher prices (in constant currency) than 2023 levels. This aligns with the company’s yield management strategy to base load bookings, lengthen the booking curve and optimize net yields. Weinstein added, “Our booked position for 2024 is further out than we have ever seen and at strong prices. With less remaining inventory to sell, despite a five percent increase in capacity, we are well positioned to drive pricing higher and deliver strong yield improvement in 2024.”

2023 Outlook

For the full year 2023, the company expects:

• Adjusted EBITDA of $4.1 billion to $4.2 billion, within the June guidance range, despite the $125 million net unfavorable impact from fuel price and currency from June guidance
• Occupancy of 100 percent or higher
• Net per diems (in constant currency) up approximately 7.0 percent compared to 2019, one percentage point higher than the midpoint of June guidance, based on the continued strength in close-in demand
• Adjusted cruise costs excluding fuel per ALBD (in constant currency) at the high end of June guidance range
• Fuel consumption per ALBD to be nearly 16 percent lower than 2019, better than previously expected

For the fourth quarter of 2023, the company expects:

• Adjusted EBITDA of $800 million to $900 million
• Net yields (in constant currency) up mid-single digits compared to 2019 with occupancy in line with historical levels and net per diems (in constant currency) up 7.0% to 8.0% compared to 2019

Financing and Capital Activity

Carnival Corporation & plc Chief Financial Officer David Bernstein noted: “We are accelerating our debt repayment efforts and aggressively managing down our interest expense. In just the last six months, we have reduced our debt balance by over 10 percent or nearly $4 billion. With improving performance, growing operating cash flows and $5.7 billion of liquidity, we are on a path to end the year with less than $31 billion of debt.”

The third quarter generated cash from operations of $1.8 billion and adjusted free cash flow of $1.1 billion. The company expects continued growth in adjusted free cash flow to be the driver for paying down debt over time.

The company took the following actions to proactively manage its debt portfolio since May 31, 2023:

• Completed a $1.3 billion senior secured first lien term loan B facility due 2027 and completed a $500 million private offering of first-priority Senior Secured Notes due 2029 to repay its existing U.S. dollar first-priority secured term loan facility maturing in 2025
• Called $1.2 billion of its highest cost debt
• Prepaid an additional $1.1 billion of debt with maturities from 2024 through 2027
• On an annualized basis, saved $200 million in gross interest expense and approximately $100 million in net interest expense as a result of lower interest income following these debt prepayments

During the third quarter of 2023, the company reduced its debt by $2.4 billion and ended the third quarter with $5.7 billion of liquidity, including cash and borrowings available under the revolving credit facility. In addition, $0.9 billion of customer deposit reserves were returned to the company, leaving a balance of $1.3 billion held in reserve by the credit card providers as of August 31, 2023. Substantially all of the credit card reserves are expected to be returned by the end of 2024.