Carnival Corp reports record year – reduces debt

2023-12-28T19:20:51+00:00 December 28th, 2023|Finance|

Carnival Corp has reported a record full 2023 fiscal year with revenues of $21.6 bill.

Full year cash from operations was $4.3 bill and adjusted free cash flow was $2.1 bill.

However, the group also reported a US GAAP net loss of $74 mill but a positive adjusted net income of $1 mill outperformed the September guidance range.

Carnival made debt payments of $6 bill, thus reducing its debt balance by $4.6 bill from its peak in the first quarter of 2023 and ended the year with $5.4 bill of liquidity.

The company also entered 2024 with its best booked position on record, for both pricing and occupancy, it claimed.

The fourth quarter 2023 revenues were also a record at $5.4 bill with record net per diems (in constant currency) significantly exceeding 2019 levels and above the September guidance range and record net yields (in constant currency).

Booking volumes for the two weeks around Black Friday and Cyber Monday reached an all-time high for that period.

Total customer deposits reached a 4Q record of $6.4 bill, surpassing the previous record of $5.1 bill (as of 30th November, 2022), by 25%.

“We ended the year on a high note with another record-breaking quarter that exceeded expectations and achieved positive full year adjusted net income. In fact, we consistently outperformed in all four quarters of the year, buoyed by a strengthening demand environment across all our brands,” Carnival Corp’s CEO, Josh Weinstein (pictured), said.

“Net yields for the fourth quarter continued on a positive trajectory, were significantly higher than a very strong 2019 and even higher than we had anticipated, enabling us to overcome four years of high cost inflation to deliver 5% higher per unit EBITDA than 2019 (holding fuel and currency constant).

“Thanks to a strong second half of 2023, we are already tracking ahead of our plan to achieve SEA Change, our three-year financial targets calling for the highest adjusted ROIC and adjusted EBITDA per ALBD in nearly two decades.

“Based on our 2024 guidance, we expect to deliver another big step forward, positioning us more than halfway toward realising all our 2026 SEA Change targets. With nearly two-thirds of 2024 on the books already, we are well positioned to obtain another year of record revenues and adjusted EBITDA,” Weinstein added.

For 4Q23, Carnival reported a US GAAP net loss of $48 mill, or $(0.04) diluted EPS, and adjusted net loss of $90 mill, or $(0.07) adjusted EPS.

Adjusted EBITDA of $946 mill exceeded the September guidance range, driven by continued strength in demand, which is driving ticket prices higher.

Record 4Q23 revenues were also revealed of $5.4 bill, with record net per diems (in constant currency) significantly exceeding 2019 levels, and above the September guidance range and record net yields (in constant currency).

While gross margin yields were down 4.6%, net yields (in constant currency) exceeded the strong 2019 levels by 7.8%.

Occupancy in 4Q23 was over 101%, in line with the company’s expectations and historical levels.

Gross margin per diems were down 2.3%, compared to 4Q19, while net per diems (in constant currency) exceeded 2019 levels by over 10% and were three percentage points better than the midpoint of the September guidance range.

Cruise costs per ALBD increased by 12%, compared to 4Q19. Adjusted cruise costs, excluding fuel per ALBD (in constant currency), increased 11% compared to the fourth quarter of 2019 and were in line with September guidance.

In addition, total customer deposits reached a 4Q record of $6.4 bill, surpassing the previous 4Q record of $5.1 bill (as of 30th November, 2022), by 25%.

Weinstein added: “We entered the year with the best booked position we have ever seen, and now have nearly two thirds of our occupancy already on the books for 2024, at considerably higher prices (in constant currency).

“We continue to experience strong bookings momentum across the board, with our European brands showing remarkable strength during the quarter with booking volumes running up well into the double digits at considerably higher prices (in constant currency).

“Our yield management strategy to base load bookings is clearly working, as we pull forward booking volumes on strong pricing. We continue to build on that momentum with our ongoing advertising investments and lead generation efforts, increasing support from our trade partners, and the exceptional guest experiences our team members provide on board every day, helping to deliver millions of cruising advocates,” he said.

The cumulative advanced booked position is at considerably higher prices (in constant currency) than 2023 levels, with each quarter of 2024 booked above the high end of the historical range.

Carnival also said that for the full year 2024, it forecast:

  • Adjusted EBITDA of around $5.6 bill, over 30% growth, compared to 2023.
  • Net yields (in constant currency) up about 8.5%, compared to 2023, with full year occupancy returning to historical levels and nicely higher net per diems (in constant currency) reflecting continued strength in pricing and on board spending.
  • Adjusted cruise costs excluding fuel per ALBD (in constant currency) up around 4.5%, compared to 2023.

As for the first quarter of 2024, the company predicted:

  • Adjusted EBITDA of about $0.8 bill, more than double 1Q23.
  • Net yields (in constant currency) up around 16.5%, compared to 1Q23 with occupancy returning to historical levels, as the company closes the remaining occupancy gap in the first half of the year.
  • Adjusted cruise costs excluding fuel per ALBD (in constant currency) up about 9.5%, compared to 1Q23, primarily due to higher occupancy levels, the timing of advertising investments and drydock related expenses, compared to the previous year.

“During 2023, we made debt payments of $6 bill and ended the year with just over $30 bill of debt, which is $3 bill better than we forecast just nine months ago during our March conference call and almost $5 bill off the first quarter peak,” explained Carnival Corp CFO, David Bernstein.

“And looking forward, we will continue to evaluate refinancing opportunities and opportunistically prepay additional debt. Furthermore, we expect durable revenue growth to drive increases in adjusted free cash flow in 2024 and beyond, which will be the primary driver for paying down our debt balances on our path back to investment grade,” he said.

During 2023, the company generated cash from operations of $4.3 bill and adjusted free cash flow of $2.1 bill, making a significant contribution toward rebuilding the company’s financial strength, it was claimed.

During 4Q23, Carnival reduced its debt by another $725 mill and for the full year made debt payments of $6 bill, while ending the fourth quarter with $5.4 bill of liquidity, including cash and borrowings available under the revolving credit facility.

In addition, the company amended an agreement with one of its credit card processors and now expects an additional $800 mill to be returned during 1Q24, representing substantially all of the credit card reserves balance as of 30th November, 2023.

Carnival also said that it continued to work towards its greenhouse gases (GHG) emission reduction goals and ambitions through innovative projects aligned with its four-part emission reduction strategy – fleet optimisation; energy efficiency; itinerary efficiency; and new technologies & alternative fuels.

In 2023, the company:

  • Reduced its absolute GHG emissions by over 10%, compared to its peak year of 2011, despite capacity growth of 30% over the same period.
  • Achieved a 15.5% reduction in fuel consumption per ALBD, compared to 2019 and expects another 4% reduction in fuel consumption per ALBD for full year 2024 compared to 2023.
  • Expects to achieve its 2030 GHG emission intensity reduction goal four years early, targeting more than a 20% reduction in emission intensity by the end of 2026, compared to 2019.
  • Surpassed its 2030 goal to achieve shore power capability for 60% of its fleet, seven years ahead of schedule; now, 64% of the company’s fleet has the capability to connect to shore power.
  • Successfully piloted the use of biofuels as a replacement for fossil fuel on one additional ship, bringing its cumulative completed biofuel pilots to three ships.
  • Delivered 38% reduction in food waste per person relative to its 2019 baseline, nearing its interim goal to reduce food waste by 40% per person by 2025, and on track toward its 2030 goal of a 50% reduction.

During a results analysts’ call, Weinstein said that he expected the European brands to become an even greater contributor to the 2024 operating improvement.

The company is continuing to pull forward on board revenue through bundling and pre-crew sales. This strategy, together with even more features on board the newer ships positions the company well for further on board revenue growth next year.

In 2023, Carnival captured over 3.5 mill new-to-cruise guests and remained in a good position to take share from land-based alternatives.

The last year alone, the company benefited from three new ships, including ‘Carnival Celebration’ and P&O’s ‘Arvia’, both flagships of their respective brands. Also welcomed was the ‘Seabourn Pursuit’, a second expedition ship for Seabourn.

‘Carnival Venezia’ was also transferred from the Costa brand to Carnival Cruise Line (CCL). Her sistership, ‘Carnival Firenze’, will also join CCL next year, as will the newbuilding ‘Carnival Jubilee’, which will be homeported at Galveston.

Also joining the fleet next year will be the ‘Sun Princess’ and ‘Queen Anne’.

Given all of the deliveries scheduled, some 30% of capacity will come from new ships, Weinstein said.

Work has also begun with Grand Bahama shipyard and other partners to build two floating drydocks, one of which will have the world’s largest lifting capacity.

This will result in significant benefit in the future, as sailing times will be reduced, preserving revenue days and, at the same time, reducing fuel consumption, Weinstein said.