Yahoo Finance Carnival Corporation (NYSE:CCL) Q2 2024 Earnings Call Transcript
Carnival Corporation & plc (NYSE:CCL) Q2 2024 Earnings Call Transcript June 25, 2024
Carnival Corporation & plc beats earnings expectations. Reported EPS is $0.11, expectations were $0.01798.
Operator: Greetings and welcome to the Carnival Corporation & plc's Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin.
Beth Roberts: Thank you. Good morning and welcome to our second quarter 2024 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our Chief Financial Officer, David Bernstein and our Chair, Micky Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to the forward-looking statement in today's press release. All references to ticket prices, net per diem, net yields and adjusted cruise costs without fuel will be in constant currency unless otherwise stated. References to per diems and yields will be on a net basis. Our comments may also reference cruise costs without fuel, EBITDA, net income, earnings per share, free cash flow, and ROIC, all of which will be on an adjusted basis unless otherwise stated.
All these references are non-GAAP financial measures defined in our earnings press release. A reconciliation to the most directly comparable US GAAP financial measures and other associated disclosures are also contained in our earnings press release and in our investor presentation. Please visit our corporate website where our earnings press release and investor presentation can be found. With that I'd like to turn the call over to Josh.
Josh Weinstein: Thanks, Beth. Inside of two years, we've made incredible strides in improving our commercial operations, strategically reallocating our portfolio composition, formulating growth plans and strengthening even further our global team Ship and Shore, the best in the business. Off the back of these efforts, we've closed yet another quarter delivering records. This time across revenues, operating income, customer deposits and booking levels, exceeding our guidance on every measure. Yields increased over 12% in Q2 over 1.5 points more than March guidance as we continue to drive strong per diem growth, up over 6%. And this is on over 10% more passenger cruise days, which is a combination of capacity growth and sailing at historical occupancy levels.
Our European brand experienced extraordinary yield improvement again this quarter, up over 20%, while North America continued to improve on last year's highs up a healthy 7%. We hit record second quarter adjusted EBITDA, roughly $150 million more than guidance. Encouragingly on a per ALBD basis to highlight operational improvement and even with significantly higher fuel prices, adjusted EBITDA not only surpassed the second quarter of 2019, it was also our highest second quarter mark in over 15 years. Coupled with flat cruise costs excluding fuel on a unit basis, which David will elaborate on, we delivered $500 million more to the bottom line year-over-year and outperformed our earnings guidance by $170 million. Based on continued strong demand trends, we are also taking up our expectations for the full year by $275 million driven by double-digit yield growth.
Now this would get us to double-digit ROIC this year. And while that will be a strong outcome for 2024, it is nowhere near what our business is capable of delivering. Our current booking trends are a testament to that. We are hitting records on top of previous records, which clearly tells us the strength and demand we have been building is continuing into next year and beyond. In the near-term, pricing on bookings taken in the second quarter has continued to run considerably higher for each of the third and fourth quarters. And again that's on top of record per diems last year. This strength has enabled us to take up yield guidance for the year by another 75 basis points. We expect to deliver consistent mid-single-digit per diem growth through the balance of the year, which would mark eighth consecutive quarters that we are achieving mid-single-digit or higher per diem improvements.
Our continued focus on optimizing our yield curve is not just a near-term benefit. We entered the second quarter with much less 2024 inventory to sell and have been able to lean even more into future periods. Accordingly, in the last three months not only did we take more bookings for post-2024 sailing than we did for in-year sailings, we set yet another record for the most future bookings ever taken during the second quarter. The unprecedented level of demand for 2025 sailings coupled with flat capacity growth next year translates into meaningful pricing power. And while it is still early for 2025 both price and occupancy are already ahead of where we were last year, leaving us in a position of strength with less inventory remaining for 2025.
It also shows in our more than $8 billion of customer deposits, which shattered last year's record by $1.1 billion. You have heard me say this before, this is not pent-up demand. It is the compounding effect of building increased consideration in our cruise brands over time and improvement in our yield management techniques to translate that demand into higher ticket prices. And it is further evidence of the strength of our consumer. Encouragingly, we're enjoying consistent growth in both repeat guests and new guests with each segment up 10% this quarter over last year. We also continue to actively manage our portfolio to further accelerate our underlying execution improvements. As previously announced, early next year we will sunset the P&0 Cruises Australia brand, selling the 28 year old Pacific Explorer and transferring P&0 Australia's two remaining vessels to Carnival Cruise Line.
Of course, we will still retain our leading presence in the Australian market, carrying over 60% of all Aussie Cruisers. It is a great market for us, especially since the Australian summer coincides with the Northern Hemisphere winter, enabling our seasonal ships to capitalize on two summer periods. And now we get to optimize our presence in this market by consolidating into Carnival Cruise Line. Not only will we gain operational, administrative and back office scale, we will ultimately have greater deployment flexibility compared to a dedicated Australian brand. At the same time, this move will further boost capacity for our highest returning brand, bringing the total to nine new ships joining Carnival Cruise Lines fleet since 2019, including the successful ship of three vessels from Costa Cruises.
These actions combined with the 2 Excel-class ships scheduled for delivery in 2027 and 2028 will grow Carnival Cruise Line's capacity by about 50% over 2019. By 2028, the Carnival brand will represent 37% of our portfolio, up from 29% as we continue to reshape our portfolio to maximize ROIC. Of course, our amazing destination experience, Celebration Key, purpose built for Carnival Cruise Line will soon support that growth and bolster returns through incremental revenue uplift coupled with improved fuel efficiency given its strategic location. We're introducing voyages to Celebration Key beginning in the second half of 2025 and ramp up to 18 ships calling Celebration Key in 2026. This quarter, we also delivered Queen Anne, Cunard's fourth Queen with an amazing naming celebration in Liverpool, England, Cunard's birthplace.
The streets of Liverpool were walled with tens of thousands of people joining the festivities as the City of Liverpool became the ship's official godparent. It was a historic moment and the first time an entire city ever christened a ship. The event generated overwhelming coverage and as intended broke booking records on the back of it. The new Queen is a step forward in every way for Cunard, while still retaining the DNA of British elegance and refinery that the brand is known for. We enjoyed another high profile naming event for Sun Princess in Barcelona with Godmother Hannah Waddington of Ted Lasso fame. Sun Princess has had great media coverage leading up to and following the naming ceremony with particular focus on its expansive specialty dining and beverage offerings and one of a kind Magic Castle experience.
Sun Princess, the first of its class has also been a big hit with guests as evidenced by outsized yield and high guest satisfaction scores. Last but not least, we held a naming event for Carnival Firenze in Long Beach, California, home for Carnival second ship featuring Fun Italian Style with Godfather Jonathan Bennett fresh off his Broadway stint starring in Spamalot. Welcoming Fun Italian Style to the West Coast generated nearly 2.5 billion media impressions to date and of course triggered a step-up in bookings. While these amazing new ships all contributed to the strong yield improvement we generated in the second quarter, even excluding them, yields on our existing fleet were up double-digits demonstrating fundamental strength on a same ship basis.
In addition, we completed the rollout of Starlink this quarter, another revenue uplift opportunity and a real game changer for our onboard connectivity experience, enabling us to deliver the same high speed WiFi service available on land throughout our fleet. Not only does this technology provide our guests with more flexibility to stay connected, it enables our crew to stay in touch with friends and loved ones and it enhances our onboard operational systems a win-win-win. Also, our consistent track record, our book position, our focus on commercial activity improvement, our portfolio management and the yet to be realized future benefits we'll receive from our Celebration Key destination development builds increased confidence in achieving the low to mid-single-digit yield growth set out in our long-term targets.
In fact, based on our upwardly revised guidance, we will be on average two-thirds of the way to achieving our three 2026 SEA Change targets. EBITDA for ALBD of $69, 12% ROIC and a 20% reduction in carbon intensity after just one year. With two years remaining, it gives us even greater confidence in achieving our target. At the same time, we continue to aggressively manage down debt and interest expense, while reducing the complexity of our capital structure, which David will elaborate on. The number of actions we've taken to improve our balance sheet this quarter puts us further down the path on our return to investment grade credit ratings over time. It's hard to believe in just over a month it will have been two years since I had the privilege of stepping into the role of CEO.
I am very proud of all we've accomplished in such a short time. Credit for our achievements go to our global team, 160,000 strong. Everyone has worked very hard to deliver yet another strong quarter, solidifying an amazing 2024 and setting us up well to top it in 2025. Equally important, they've all had a hand in delivering amazing vacation experiences and unforgettable happiness to 3 million guests yet again this quarter. So, to our amazing team, thank you. And of course, we couldn't do it without the support from our amazing travel agent partners and so many other stakeholders. Thanks to all of you. With that, I'll turn the call over to David.
David Bernstein: Thank you, Josh. I'll start today with a summary of our 2024 second quarter results. Next, I'll provide the highlight of our third quarter June guidance and some color on our improved full year guidance. Then I'll finish up with an update on our refinancing and deleveraging efforts. Let's turn to the summary of our second quarter results. Our bottom line exceeded March guidance by nearly $170 million as we outperformed once again. The outperformance was essentially driven by three things. First, favorability in revenue worth almost $65 million as yields came in up over 12% compared to the prior year. This was more than a point and a half better than March guidance driven by close in strength in ticket prices as well as onboard spending.
Second, cruise costs without fuel per available lower berth-day or ALBD came in flat compared to the prior year and were three points better than March guidance, which was worth over $85 million. Some cost savings were identified during the quarter which flowed through as improvements to our full year June guidance. However, most of the favorability in cruise costs for the second quarter was due to the timing of expenses between the quarters. And third, other operational improvements slightly offset by higher fuel prices and currency were worth $20 million. Per diems for the second quarter improved 6% versus the prior year driven on both sides of the Atlantic by considerably higher ticket prices and improved onboard spending. At the same time, our European brands on their path back to historical occupancy saw outside growth in their occupancy of over 10 percentage points as compared to the second quarter of 2023.
Our second quarter was fantastic across the board with strong demand delivering record revenues, record yields, record per diems and record operating income. Now one thing to highlight about our third quarter June guidance. The positive trends we saw in the second quarter are expected to continue in the third. Yield guidance for the third quarter is set at a strong 8%. The difference between the yield guidance for the third quarter and the second quarter yield improvement of over 12% is simply the result of the greater occupancy opportunity we had in the second quarter 2024 as we began sailing within our historical occupancy range in the second half of 2023. It is great to see that we anticipate continued strong per diem growth in the third quarter, which we are forecasting will drive the majority of the 8% yield improvement.
Turning to our improved full year June guidance. June guidance for net income is $1.55 billion, an improvement over our March guidance of approximately $275 million. This improvement was driven by three things. First, three quarters of a point increase in yields to approximately 10.25% based on the considerably higher prices we have been seeing in booking trends so far this year and the continued strength in demand we anticipate going forward. All of this is expected to drive an increase in net revenue of about $190 million. Second, as I previously mentioned, we identified cost savings that we flow through to our full year June guidance. However, they will be partially offset by higher variable compensation driven by our forecast for improved operating income.
Net, we are flowing through $25 million of cost savings for the full year. And third, an improvement in net interest expense of $60 million driven by our second quarter refinancing, repricing and debt prepayment activities. The strong 10.25% improvement in 2024 yields is a result of the increase in all the component parts. Higher ticket prices, higher onboard spending and higher occupancy at historical levels with all three components improving on both sides of the Atlantic. We recognize that even within our industry leading cost structure, there will always be cost opportunities which we can focus on and harvest over time. While we identify cost saving opportunities during the second quarter, we will not stop there. We will continue our endless quest for greater efficiency in our cost structure.
I will finish up with a summary of our refinancing and deleveraging efforts. During the second quarter, we generated cash from operations of $2 billion and free cash flow of $1.3 billion. We took delivery of one spectacular new ship Queen Anne and drew on her associated export credit facility continuing our strategy to finance our new bill program at preferential interest rates. Our efforts to proactively manage our debt profile continued throughout the quarter. We prepaid 1.6 billion of secured term loan facilities. We also repriced approximately 2.75 billion of the same secured term loan facilities. And we issued 535 million of unsecured notes due 2030, refinancing our unsecured notes due 2026, extending those maturities and reducing interest expense.
These transactions simplified our capital structure, reduced net interest expense in the second quarter by $10 million will reduce net interest expense for 2024 by $55 million and $85 million on an annualized basis. Our decision to prepay 1.6 billion of debt during the second quarter was based on our strong liquidity, our improved financial performance and our optimism about the future. We will continue to look for more opportunistic refinancings over time. Our leverage metrics will continue to improve throughout 2024 as our EBITDA continues to grow and our debt levels improve. Using our June guidance EBITDA of $5.83 billion, we expect a two turn improvement in net debt to EBITDA leverage compared to year end 2023 approaching 4.5 times and positioning us two-thirds of the way down the path to invest in great metrics.
Looking forward, we expect substantial free cash flow driven by our ongoing operational execution and the lowest newbuild order book in decades to deliver continued improvements in our leverage metrics and balance sheet moving us further down the road to rebuilding our financial fortress, while continuing the process of transferring value from debt holders back to shareholders. Now operator, let's open the call for questions.
*** While we acknowledge the potential of CCL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. ***
To continue reading the Q&A session, please click here.
