Carnival Corp has sent shivers down the spine of the cruise sector after admitting that the Group is facing a number of headwinds in the near future, despite recording an increase in US GAAP net income of $1.8 bill, or 2.58 diluted EPS for the third quarter of this year.
Third quarter adjusted net income was also $1.8 bill, or $2.63 EPS, up by $1 mill on 3Q18 results. The adjusted net income excludes net charges of $39 mill for 3Q19 and net gains of $34 mill for 3Q18.
Total revenues for 3Q19 were $6.5 bill, higher than the $5.8 bill reported for the same period in the previous year. Gross cruise revenues were $6.3 bill, compared to $5.7 bill for 3Q18. In constant currency, net cruise revenues of $5 bill, compared to $4.7 bill for the previous year, an increase of 5.3%.
The company said that it expected full year 2019 adjusted earnings per share to be in the range of $4.23 to $4.27, reflecting recent fuel price increases, compared to June guidance of $4.25 to $4.35 and 2018 adjusted earnings per share of $4.26.
In 3Q19, gross revenue yields (revenue per available lower berth day or ALBD) increased 5.6%. In constant currency, net revenue yields decreased 0.5%, in line with June guidance of down slightly to flat.
Gross cruise costs, including fuel per ALBD, increased 9.4%. In constant currency, net cruise costs, excluding fuel per ALBD, decreased 3.2%, better than the June guidance of up 0.5 to 1.5%, due to the timing of expenses between quarters and cost improvements realised during the quarter.
Changes in fuel prices increased earnings by $0.07 per share, offset by a decrease in earnings, due to changes in currency exchange rates of $0.07 per share compared to 3Q18. Compared to June guidance, changes in fuel prices and currency exchange rates decreased earnings by $0.03 per share.
Carnival Corp President and CEO, Arnold Donald, stated, “I thank our 150,000 global employees for their efforts to deliver a record quarter in an otherwise challenging year. We achieved additional cost improvements largely driven by leveraging our scale, offsetting the earnings impact, due to voyage disruptions from the combined impact of Hurricane Dorian, the tensions in the Arabian Gulf and the delayed delivery of ‘Costa Smeralda’.
“A further reduction in guidance for ticket and on board revenue worth $0.06 per share in part contributed to by the high level of close-in voyage disruptions was also offset. However, due to an $0.08 impact from the recent spike in fuel prices caused by geopolitical events, we are reducing our full year guidance for 2019 by $0.05 per share,” he advised.
Based on current booking trends, the company expected full year 2019 constant currency net cruise revenues to be up by about 4%, with capacity growth of 4.2%. Carnival said that it continued to expect its North America & Australia segment yields to be up for the year, but slightly less than previous guidance, while its Europe & Asia segment was still expected to be down for the year but slightly more than previously said.
The company also forecast full year net cruise costs, excluding fuel per ALBD, in constant currency to be up around 0.3% versus the previous year, compared to June guidance of a rise of about 0.7%.
Weather related voyage disruptions, the tensions in the Arabian Gulf and a ship delivery delay were expected to have a financial impact of $0.04 to $0.06 per share, compared to the June guidance. Changes in fuel prices and currency exchange rates are expected to decrease earnings by $0.08 per share also compared to the earlier guidance.
Fourth quarter constant currency net revenue yields were expected to be down 2-3%, compared to the prior year. Net cruise costs, excluding fuel per ALBD, in constant currency for 4Q19 are expected to be up 4-5%, compared to the prior year.
Changes in fuel prices and currency exchange rates are expected to increase earnings by $0.06 per share compared to 4Q18. Voyage disruptions, due to weather, a ship delivery delay and the US government’s policy change on travel to Cuba were expected to have a financial impact of around $0.07 to $0.09 per share.
Based on the above, the company expects adjusted earnings per share for 4Q19 to be in the range of $0.46 to $0.50 versus 2018 adjusted earnings per share of $0.70.
As for the 2020 outlook, Carnival said that Cumulative advanced bookings for the first half of 2020 were ahead of the previous year at prices that are in line with 2019 on a comparable basis. Since June, both booking volumes and prices for the first half of next year have been running lower than the previous year.
For 2020, the company expects capacity growth of about 7%. As previously indicated, in 2020 the company will increase its usage of MGO as a percent of total fuel consumption, due to the IMO sulfur emission regulations.
MGO is currently anticipated to represent around 40% of fuel consumption for 2020, compared to about 20% for 2019. Using September’s guidance fuel prices, next year’s fuel expense was expected to be $1.8 bill, compared to $1.6 bill expected for 2019. The company also currently expected depreciation to be about $2.4 bill for next year, compared to $2.2 bill for 2019.
Donald added, “As a truly global cruise company, with nearly 50% of our guests sourced outside of the US, we are facing a number of current headwinds, including weakening economies affecting our Europe & Asia segment, a strong dollar and of course, the IMO 2020 regulations, and we are working to mitigate them.
“We have taken actions to bring capacity in Southern Europe more in line with demand, reflecting the current conditions, which have been heavily influenced by ongoing economic malaise, the uncertain geopolitical environment and recent trends in consumer confidence. We have also made close-in deployment changes, including those made to address the recent situation in the Arabian Gulf, which has had an impact on recent booking trends and ticket prices.
“While we are subject to uneven economies in the short run, the global aspect of our business has proven to be a strength over time, producing our industry leading position with over $5 bill in cash from operations, attractive returns on capital and the strongest balance sheet in the industry,” he concluded.
Meanwhile, Costa Cruises has delayed an inaugural programme of Mediterranean cruises on its first LNG-fueled cruise ship, ‘Costa Smeralda’, due to construction delays at the Meyer Turku shipyard in Finland.
The ship was due for delivery in mid-October but Meyer said that delivery will now be in mid-November.
Costa confirmed that the ship will now commence her inaugural programme of cruises on 30th November, 2019.
Meyer Turku said that with its LNG propulsion system and many sophisticated rooms with stage and audio/video equipment “the complexity and sophistication of the ship is very high and that its its size of 180 000 gt is impressive and much larger than the recently built ships at the Turku shipyard.”
“In getting this all to work together with many involved persons and companies, Meyer Turku had a slower progress speed than needed, despite counter-actions,” the shipbuilder said, adding that “with the new time frame, Meyer Turku is going to deliver a highly sophisticated cruise ship in the usual high Meyer Turku quality.”
Costa Cruises President, Neil Palomba, said: “Our priority is always to offer our guests a unique vacation experience that exceeds their expectations. Unfortunately, the Meyer Turku yard needs more time to ensure that ‘Costa Smeralda’ will do just that and this is absolutely crucial as far as we’re concerned. At the same time, I would stress that ‘Costa Smeralda’ is a totally innovative project in terms of both technology and product.”