Carnival Corp. & plc (NYSE:CCL)

The period under review demonstrates significant fluctuations in financial performance, particularly concerning economic profit. Net operating profit after taxes (NOPAT) initially exhibited a slight decrease before experiencing substantial negative values, followed by a recovery in the most recent year. The cost of capital decreased over the majority of the period, but increased in the final year. Invested capital increased initially, peaked, and then declined. Consequently, economic profit remained consistently negative throughout the observed timeframe, though the magnitude of the loss diminished towards the end of the period.

Net Operating Profit After Taxes (NOPAT)

NOPAT decreased from US$3,339 million in 2018 to US$3,226 million in 2019. A dramatic decline followed, with NOPAT reaching -US$9,312 million in 2020 and -US$7,863 million in 2021. A partial recovery occurred in 2022 (-US$4,485 million), culminating in a positive value of US$2,207 million in 2023. This suggests a significant turnaround in operational profitability in the latest year.

Cost of Capital

The cost of capital decreased from 23.70% in 2018 to 13.45% in 2022, indicating a reduced cost of financing operations. However, it increased to 15.84% in 2023. This recent increase could be attributed to changing market conditions or shifts in the company’s capital structure.

Invested Capital

Invested capital increased from US$35,074 million in 2018 to US$38,330 million in 2019, then rose sharply to US$49,017 million in 2020. Subsequently, it decreased to US$46,517 million in 2021, US$44,143 million in 2022, and further to US$39,428 million in 2023. This pattern suggests a period of expansion followed by a strategic reduction in capital employed.

Economic Profit

Economic profit consistently registered as a loss throughout the period. The losses were most substantial in 2020 (-US$17,285 million) and 2021 (-US$14,796 million), coinciding with the lowest NOPAT values. While remaining negative, the magnitude of the loss decreased to -US$10,424 million in 2022 and -US$4,040 million in 2023, aligning with the improvement in NOPAT and despite the increase in cost of capital in the final year. This indicates that the company is moving towards generating returns exceeding its cost of capital, but has not yet achieved positive economic profit.

Overall, the observed trends suggest a challenging period followed by a recovery. The improvement in NOPAT and the decreasing magnitude of economic losses in the later years are positive indicators, but continued monitoring is necessary to assess the sustainability of this trend and the company’s ability to generate positive economic profit.

The annual financial data exhibits significant fluctuations in profitability and operating performance over the analyzed periods.

Net income (loss)

The net income demonstrates a positive trend in the initial years, with values of 3,152 million USD in 2018 and a slight decrease to 2,990 million USD in 2019. However, a dramatic shift occurred thereafter, with net income turning negative in 2020 at -10,236 million USD. This substantial loss persisted through 2021 and 2022, albeit with a gradual improvement from -9,501 million USD to -6,093 million USD. By 2023, the net loss narrowed substantially to -74 million USD, indicating a near return to breakeven status.

Net operating profit after taxes (NOPAT)

The NOPAT followed a somewhat similar pattern to net income, starting at 3,339 million USD in 2018 and declining slightly to 3,226 million USD in 2019. A sharp reversal occurred in 2020, with NOPAT plunging to -9,312 million USD, reflective of significant operational challenges. While losses continued in 2021 and 2022, the operating profit losses reduced over time from -7,863 million USD to -4,485 million USD. Notably, in 2023, NOPAT turned positive at 2,207 million USD, suggesting a substantial recovery in operating performance.

Overall, the trends indicate that the entity faced severe financial difficulties starting in 2020, likely related to adverse external conditions impacting operational and net profitability. Despite initial sharp declines, a progressive improvement is evident in subsequent years, culminating in a recovery towards profitability by 2023 at the operating profit level and a significant reduction in net losses.

The financial data reveals distinct trends in the income tax expense and cash operating taxes over the examined period, reflecting significant fluctuations influenced by various operational or external factors.

Income Tax Expense (Benefit), Net

This item exhibited an increasing trend from US$54 million in 2018 to a peak of US$71 million in 2019, indicating a rise in tax obligations. The period of 2020 and 2021 shows a reversal into negative territory with values of -US$17 million and -US$21 million respectively, suggesting tax benefits or credits were realized during these years. This could be indicative of losses or deferred tax assets being recognized. In 2022 and 2023, the tax expense returned to positive figures, with US$13 million and US$12 million respectively, but remained substantially lower than the 2018-2019 levels, signaling a partial recovery or stabilization in taxable income.

Cash Operating Taxes

The cash operating taxes followed a similar pattern initially, increasing from US$57 million in 2018 to US$77 million in 2019. Subsequently, this measure also dipped below zero in 2020 and 2021, reflecting negative cash flows from operating tax payments of -US$15 million and -US$17 million respectively, which may align with tax refunds or credits received. Notably, in 2022, the cash operating taxes returned to a positive amount of US$10 million, but a dramatic decline occurred in 2023 with a significant cash outflow reported as -US$358 million. This sharp negative value could suggest a sizeable tax refund, an adjustment, or a one-off tax-related cash inflow that sharply contrasts with prior periods and warrants further investigation to understand underlying causes.

Overall, the data portrays an environment of considerable tax-related volatility over the six-year span. The movement from positive to negative tax expenses and cash taxes from 2020 onwards may reflect the impact of external economic factors, regulatory changes, or internal losses. The substantial negative cash operating tax figure in 2023 is a prominent outlier that markedly differs from past trends, highlighting a need for a deeper review to ascertain the reasons behind such a significant cash tax flow reversal.

Total Reported Debt & Leases

There is a significant upward trend in total reported debt and leases from 2018 to 2022, increasing from approximately $10.7 billion to $35.9 billion. This represents more than a threefold rise over this period. However, in 2023, a noticeable reduction occurred, bringing the debt down to around $31.9 billion. The substantial increase through 2022 suggests heightened leverage or increased borrowing, followed by some deleveraging or debt repayment in the most recent year.

Shareholders’ Equity

Shareholders' equity experienced a declining trend during the period, dropping from about $24.4 billion in 2018 to $6.9 billion in 2023. The decline was particularly steep between 2019 and 2022, with equity falling nearly by 70%. The reduction in equity indicates a possible decrease in net assets, which could result from accumulated losses, dividend payments exceeding earnings, or other equity-reducing events.

Invested Capital

Invested capital showed an initial increase from $35.1 billion in 2018 to a peak of about $49.0 billion in 2020. After reaching this peak, invested capital declined consistently through 2023, dropping to approximately $39.4 billion. The peak in 2020 followed by a decline suggests changes in the company’s asset base or capital structure, reflecting possible asset disposals, depreciation, or adjustments in working capital.

Overall Insights

The data reveals a period marked by increased borrowing and reduced equity, resulting in elevated financial leverage. While debt surged until 2022, some repayment or restructuring actions in 2023 led to a partial reduction in liabilities. Simultaneously, the decline in shareholders' equity points to weakened net asset positions. The fluctuations in invested capital align with these changes, indicating active management of capital resources amid shifting financial conditions.

The economic spread ratio demonstrates a consistently negative trend over the observed period, though with diminishing magnitude in the most recent years. Economic profit consistently registers as negative throughout the timeframe, indicating the company’s returns are insufficient to cover the cost of capital. Invested capital fluctuates, peaking in 2020 before declining in subsequent periods.

Economic Spread Ratio

The economic spread ratio exhibits a marked deterioration from -14.18% in 2018 to -35.26% in 2020, representing the most substantial negative spread during the analyzed period. This suggests a significant underperformance relative to the cost of capital. From 2020 through 2023, the ratio improves, moving from -35.26% to -10.25%. While still negative, this improvement indicates a narrowing gap between returns and the cost of capital. The rate of improvement appears to be accelerating, with a larger positive change between 2022 and 2023 than in the prior two years.

Economic Profit

Economic profit shows a consistent pattern of losses. The largest loss is recorded in 2020 at -17,285 US$ millions. Losses decrease in magnitude from 2020 to 2023, reaching -4,040 US$ millions. This reduction in losses aligns with the improving economic spread ratio, suggesting increased efficiency or improved revenue generation relative to capital employed.

Invested Capital

Invested capital increased from 35,074 US$ millions in 2018 to a peak of 49,017 US$ millions in 2020. Following 2020, invested capital decreased each year, reaching 39,428 US$ millions in 2023. This decrease could be attributed to divestitures, reduced capital expenditure, or asset impairments. The decline in invested capital, coupled with the improving economic spread ratio, may indicate a more efficient allocation of resources.

Overall, the period demonstrates a challenging financial performance, characterized by negative economic profit and a widening economic spread ratio until 2020. The subsequent years show signs of recovery, with both economic profit and the economic spread ratio trending positively, alongside a reduction in invested capital. The trend suggests a potential shift towards improved financial health, though continued monitoring is necessary to confirm sustained positive performance.

The economic profit margin demonstrates a highly volatile pattern over the observed period. Initially negative, the margin experienced substantial deterioration before showing signs of improvement in the most recent year.

Economic Profit Margin Trend

In 2018 and 2019, the economic profit margin was consistently negative, registering at -26.35% and -24.14% respectively. This indicates that the company’s economic profit, calculated as profit after deducting the cost of capital, was negative during these years.

A dramatic decline occurred in 2020, with the economic profit margin plummeting to -308.93%. This substantial decrease is linked to a significant reduction in revenues coupled with a continued negative economic profit. The magnitude of this figure suggests a considerable shortfall in generating returns exceeding the cost of capital.

The economic profit margin remained exceptionally negative in 2021, at -775.48%, despite a modest increase in revenues compared to 2020. This suggests that while revenue began to recover, the economic profit continued to suffer, likely due to increased costs or a higher cost of capital.

In 2022, the economic profit margin improved to -85.67%, indicating a lessening of the negative gap between returns and the cost of capital. This improvement coincided with a substantial increase in revenues.

The most recent year, 2023, shows a further improvement, with the economic profit margin reaching -18.71%. This represents the least negative margin observed throughout the period, suggesting a positive trend in the company’s ability to generate economic profit, although it remains negative overall.

The correlation between revenues and the economic profit margin is apparent. Increases in revenue generally correspond with improvements in the margin, although the impact is not linear, and other factors clearly influence the relationship. The substantial fluctuations highlight the sensitivity of economic profit to both operational performance and the cost of capital.