Carnival Reports Second Quarter Results
Carnival Corporation & plc reported net income of $127.8 million ($0.19 Diluted EPS) on revenues of $1.33 billion for its second quarter ended May 31, 2003, compared to net income of $194.2 million ($0.33 Diluted EPS) on revenues of $989.9 million for the same quarter in 2002. Earnings per share for the second quarter of 2003 were reduced by $0.02 per share due to litigation and other charges associated with the dual listed company ("DLC") transaction with P&O Princess Cruises plc ("P&O Princess"). In addition, because of the seasonality of P&O Princess' business, the consolidation of P&O Princess' results reduced the company's second quarter 2003 earnings per share by $0.01 per share. Net income for the six months ended May 31, 2003 was $254.7 million ($0.40 Diluted EPS) on revenues of $2.37 billion, compared to net income of $323.8 million ($0.55 Diluted EPS) on revenues of $1.90 billion for the same period in 2002.
Carnival Corporation and P&O Princess entered into a DLC structure on April 17, 2003, which effectively made Carnival Corporation and P&O Princess a single economic entity ("Carnival Corporation & plc" or the "company"). Also on that date, P&O Princess changed its name to Carnival plc and its year end to November 30. For reporting purposes, Carnival Corporation has accounted for the DLC transaction as an acquisition of Carnival plc. Consolidated financial results for the company for the second quarter and six months of 2003 include the results of Carnival Corporation for the entire period and the results of Carnival plc from April 17, 2003.
Consolidated revenues for the second quarter 2003 increased 34.8 percent primarily due to the inclusion of six weeks of Carnival plc revenues and a 16.6 percent increase in Carnival Corporation standalone capacity, partially offset by lower gross revenue yields (gross revenues per available lower berth day). The decline in gross revenue yields was 7.2 percent in the second quarter, resulting primarily from a decline in cruise ticket prices, lower occupancy levels and reduced numbers of passengers purchasing air transportation from the company. In the cruise industry, most companies, including Carnival, consider net revenue yields as the most relevant measure of revenue performance. Net revenue yields represent gross revenues less the costs of air transportation, travel agent commissions and onboard revenues divided by the number of available lower berth days. Net revenue yields were down 8.6 percent in the second quarter of 2003, largely because of lower cruise ticket prices and occupancy levels. On a pro forma basis for the second quarter, assuming that the DLC transaction was completed and Carnival plc was consolidated for the full quarter in both years, net revenue yields declined 6.7 percent, while pro forma gross revenue yields declined 6.3 percent.
For the second quarter of 2003, operating costs and selling, general and administrative expenses increased 52.5 percent compared to the second quarter of 2002. Approximately $247 million or 70 percent of the increase was due to the inclusion of Carnival plc and the remainder was primarily due to increased capacity and higher fuel costs. Gross operating costs per available lower berth day increased 5.9 percent compared to the second quarter of 2002. Gross operating costs per available lower berth day on a pro forma basis increased 5.2 percent for the combined entity.
Net operating costs per available lower berth day (excluding costs of air transportation, travel agent commissions and onboard revenues, which are included in the computation of net revenue yields) increased 8.4 percent compared to the second quarter of 2002, largely because of Carnival plc's higher operating cost levels compared to Carnival Corporation and because of higher fuel costs. On a pro forma basis, net operating costs per available lower berth day increased 9.2 percent for the combined entity.
The litigation charge in the second quarter of 2003 relates to the anticipated settlement of claims by Carnival plc shareholders whose tender of over 53 million Carnival plc shares in the partial share offer was wrongfully rejected by the receiving agent, Computershare Investor Services plc. The company has recorded a charge in the second quarter reflecting the full costs of reimbursing those shareholders for their losses. This litigation charge, along with other charges associated with the DLC transaction with P&O Princess, amounted to $16 million.
"Given the concerns leading up to the war with Iraq and its eventual outbreak, along with the uncertain worldwide economy, we are satisfied with the performance of our brands in this extremely difficult environment for leisure travel," said Micky Arison, Carnival Corporation & plc Chairman and CEO. "We were delighted to complete the DLC transaction with P&O Princess during the second quarter, the largest corporate transaction in our company's history. We have made significant strides in the integration of our two organizations and our integration teams have demonstrated energy and enthusiasm in achieving our integration synergy targets," Arison added.
The company launched several ships during the second quarter of 2003. In the United Kingdom, the 1,610-passenger Ocean Village was introduced under a new brand formed by P&O Cruises UK. The Ocean Village features an innovative "club cruising" concept, aimed at the active, younger traveler. The 2,010-passenger Adonia, a former Princess Cruises vessel, will also operate in the UK within the P&O Cruises UK fleet. In Germany, a new AIDA ship, the 1,270-passenger AIDAaura, entered service. For southern Europe, Costa Cruises' new 2,114-passenger Costa Mediterranea, which entered service just last week, will operate in the Mediterranean this summer.
The company also recently rearranged the shipbuilding schedule of three cruise ships being constructed at Italy's Fincantieri shipyards to accommodate the construction of a new 116,000-ton cruise ship for Princess Cruises in North America. The 3,100-passenger Princess ship is expected to be delivered in May 2006.
Earlier this week, the company announced that Carnival Cruise Lines' 1,486-passenger Jubilee will be transferred to P&O Cruises Australia in the fall of 2004, doubling the size of the brand's operations in the region.
Carnival has three new ships scheduled to enter service over the remainder of the year. In North America, Princess Cruises' 1,970-passenger Island Princess will enter service in Alaska on July 12, 2003, while Carnival Cruise Lines' new 2,974-passenger Carnival Glory will begin sailing July 14, 2003 from Port Canaveral, Fla. Holland America's 1,848-passenger Oosterdam, the second vessel of the line's new Vista-class series, will operate a series of European cruises beginning August 3, 2003.