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Carnival Corporation (CCL)

F3Q2010 Earnings Call Transcript

September 21, 2010 10:00 am ET

Executives

Howard Frank – Vice Chairman and COO

David Bernstein – SVP and CFO

Micky Arison – Chairman and CEO

Beth Roberts – VP, IR

Pier Luigi Foschi – Chairman and CEO, COSTA CROCIERE S.p.A

Analysts

Rick Lyall – John W. Bristol

Assia Georgieva – Infinity Research

Tim Conder – Wells Fargo Securities

Janet Brashear – Sanford C. Bernstein

Jamie Rollo – Morgan Stanley

Ian Rennardson – BoA

Robin Farley – UBS

Rachael Rothman – Susquehanna

Jeff Hans [ph] – Citigroup

Kevin Milota – JP Morgan

Sharon Zackfia – William Blair

Tim Ramskill – Credit Suisse

David Leibowitz – Horizon Asset Management

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to the third quarter earnings conference call. (Operator instructions) As a reminder this conference is being recorded, Tuesday, September 21, 2010.

It is now my pleasure to turn the conference over to Mr. Howard Frank, Vice Chairman and Chief Operating Officer. Please go ahead, sir.

Howard Frank

Thank you operator. Good morning everyone. This is Howard Frank in Miami. David Bernstein, our Senior VP of Finance and Chief Financial Officer is with me here in Miami; as is Beth Roberts, our Vice President of Investor Relations. Micky Arison is in Genoa, Italy at our Costa cruise offices with Pier Luigi Foschi. He is also on the call, but he is in Italy and he and I will coordinate on the Q&A.

Before I talk about the outlook, I’m going to it over to David, who will give you some color on the third quarter and the cost outlook for the fourth quarter. David.

David Bernstein

Thank you, Howard. I will begin the call by reading the forward-looking statement. During this conference call, we will make certain forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and assumptions, which may cause the actual results, or achievements of Carnival to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. For further information, please see Carnival’s earnings press release and its filings with the Securities and Exchange Commission.

For the third quarter, our EPS was $1.62. The third quarter came in above the midpoint of our June guidance by $0.17 per share. The improvement was driven by a number of things. First, net revenue yields in local currency came in at 6.2%. This was slightly better than the 5% to 6% forecast in June guidance and was worth about $0.03 per share.

As Micky indicated in the press release, despite ongoing economic concerns, cruise ticket prices remained strong close to sailing rewarding guests that booked early. Secondly, net cruise costs without fuel and in local currency came in down 2.4%. This was significantly better than our June guidance of up 1% to 2%, and was worth $0.08 per share. $0.02 of the $0.08 relates to the one-time legal settlement. The other $0.06 was broad-based. It was spread across most areas of ship operating expense, as well as SG&A. Our operating companies once again did an outstanding job controlling costs. Third our results benefited $0.04 from lower fuel prices and a weaker dollar and lastly several small items worth about $0.02 per share.

Now let us look at the third quarter operating results versus the prior year, our capacity increased 6.2% in the third quarter of 2010 with the majority of the increase once again going to our European brands. Our European brands grew 8% while our North American brands grew 3.7%. Our net revenue yields also increased 6.2% in the third quarter and this was driven by our North American brands, who were up 14.3% with increases across all itineraries.

I’m happy to report that our North Americans brands recaptured more than half the yield they lost in the third quarter last year from the impact of the financial crisis. Our European brands experienced flat local currency net ticket yields, which were in line with our expectations. We were pleased with this performance given the uncertain economic environment, the 8% capacity increase, and the fact that the European brands held up so well last year giving them a more difficult prior year comparison.

For net onboard revenue yields, we experienced a 1.3% in local currency, which was in line with our expectations. The increase in net onboard revenue yields occurred on both sides of the Atlantic. In summary, we were very encouraged by the strong performance of our North American brands net ticket yields. The solid performance of our European brands on increased capacity and our overall improved onboard revenue yields.

On the cost side, cruise costs per available lower berth day, excluding fuel and in local currency, were down 2.4% versus the prior year. If you exclude the charge for the British pension plan, which was included in our guidance and the one-time legal settlement which was not in our guidance, our costs were down 4%, which was consistent with the first and second quarter. The decline was driven by economies of scale, benefits of cost reduction programs, and a low inflationary environment.

Fuel prices this quarter were up 17% versus last year, costing us $57 million, and while the stronger dollar translates into lower cost, overall the stronger dollar translated into $72 million of lower earnings. So despite a fuel and currency negative impact of $0.16, our EPS improved $0.29 this quarter.

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