Carnival (CCL)

Q2 2012 Earnings Call

June 22, 2012 10:00 am ET

Executives

Howard S. Frank - Vice Chairman, Chief Operating Officer and Member of Executive Committee

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Micky M. Arison - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Carnival Plc and Chief Executive Officer of Carnival Plc

David Bernstein - Chief Financial Officer and Senior Vice President

Beth Roberts - Vice President of Investor Relations

Analysts

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Robin M. Farley - UBS Investment Bank, Research Division

Richard Ellis Lyall - John W. Bristol & Co., Inc.

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Assia Georgieva

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Jaime M. Katz - Morningstar Inc., Research Division

Lena Thakkar - HSBC, Research Division

David Leibowitz - Horizon Kinetics LLC

Kevin Milota - JP Morgan Chase & Co, Research Division

Jamie Rollo - Morgan Stanley, Research Division

Edward Stanford - Oriel Securities Ltd., Research Division

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Carnival Corporation Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Friday, June 22, 2012. I would now like to turn the conference over to Howard Frank, Vice Chairman and Chief Operating Officer. Please go ahead.

Howard S. Frank

Good morning, everyone. We are all here in Miami: David Bernstein, our Chief Financial Officer; Beth Roberts, VP of Investor Relations; and Micky Arison, Chairman and CEO of Carnival Corporation. Before we proceed with the formal comments this morning, I'm going to just turn it over to Micky.

Micky M. Arison

Hi, everybody. I just want to warn you that -- many of you know we had quite an exciting evening last night and a very long evening last night. So if during the presentation you hear any snoring in the background, that's me, and I apologize if I'm not totally coherent this morning. But I'm going to do the best I can. David?

David Bernstein

Thank you, Micky. Before I begin, please note that some of our remarks on this conference call will be forward-looking. I will refer you to the cautionary statement in today's press release. Also, all of my references to revenue and cost metrics will be in local currencies unless otherwise noted, as this is a more useful measure of business trends.

Our non-GAAP EPS for the second quarter was $0.20. The second quarter came in $0.13 above the midpoint of our March guidance. The improvement was driven by better-than-expected pricing on close-in bookings and higher onboard and other revenue worth $0.05.

Lower net cruise costs, excluding fuel, were worth $0.03. Lower fuel prices were worth $0.01; and 2 nonrecurring items, each worth $0.02. The first nonrecurring item relates to insurance proceeds received for the total loss of Costa Concordia in excess of its net book value and was forecasted to be received in the third quarter in our March guidance, while the second nonrecurring item is a litigation settlement we received relating to Queen Mary 2's propulsion pod.

Now let's look at our second quarter operating results versus the prior year. Our capacity increased over 2%, roughly the same for both the North American brands and the Europe, Australia and Asian brands or, as we call them, our EAA brands. Our total net revenue yields increased -- sorry, decreased 1.4% in the second quarter. However, excluding Costa, total net revenue yields increased 1.1%, with net ticket revenue yields flat and net onboard and other revenue yields up 4%.

With respect to net ticket yields, the North American brands were up 1.5%, driven by improved yields in the Caribbean and Alaska, partially offset by lower yields in European and other itineraries. During the second quarter, slightly more than half of the North American brand's capacity was positioned in the Caribbean.

Excluding Costa, our EAA brands' net ticket yields were down 2.7%. For net onboard and other yields, again excluding Costa, the increase was 4%. This was driven by our North American brands, while our EAA brands, excluding Costa, were flat despite lower occupancy. We were pleased with the results, as we saw improvement in all categories of onboard revenue.

On the cost side, net cruise cost per available lower berth day, excluding both fuel and the 2 favorable nonrecurring items I previously mentioned, were down 2.2% versus the prior year. The decline in net cruise cost per ALBD was greater than what we expected in our March guidance.

As a result of our ongoing efforts to reduce fuel usage, our consumption per ALBD declined 3.2% this quarter, thus continuing a multiple-year savings trend. Fuel prices this quarter were 12% higher than last year, costing us $0.09 per share. Currency rates this quarter versus the prior year cost us an additional $0.02 as a result of the stronger U.S. dollar. In summary, the second quarter non-GAAP EPS was $0.06 lower than 2011 earnings of $0.26 per share, driven by higher fuel prices as reduced revenue yields were more than offset by lower net cruise costs.

Excluded from our non-GAAP EPS but included in our GAAP EPS were unrealized losses on fuel derivatives of $145 million, or $0.18 per share, resulting from marking to market our portfolio of fuel derivatives. As we first discussed on the December call, we believe it is more meaningful to evaluate our earnings performance by excluding the impact of unrealized gains and losses on fuel derivatives until the gains or losses are realized. This appropriately lines up the economic or the cash impact of the fuel derivative with the underlying fuel price risk, which it is intended to mitigate.

In March, we entered into zero cost collars for an additional 19% of our estimated fuel consumption for the second half of fiscal 2012 and fiscal 2013, bringing the total to approximately 38% for this period. We feel comfortable with this level of protection for the next 18 months.

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