Carnival Corporation & plc (CCL) Q4 2017 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to our Fourth Quarter 2017 Earnings Conference Call. I am Arnold Donald, President and CEO of Carnival Corporation & plc. Today, I'm joined by our Chairman, Micky Arison; by David Bernstein, our Chief Financial Officer; and by Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning and we sincerely wish each of you and those you love a safe and joyful holiday season. Now, before I begin, please note that some of our remarks on this call will be forward-looking, therefore, I must refer you to the cautionary statement in today's press release. While fourth quarter adjusted earnings were $0.04 per share below the prior year's record levels, we experienced another quarter of strong revenue yield and, excluding $0.11 per share drag due to the hurricane disruptions, a quarter of earnings improvement. In fact, we finished the year strong with adjusted earnings that exceeded the midpoint of guidance. This quarter, we exceeded guidance by $0.16 per share, helping to produce the highest full year adjusted earnings in our company's history. We achieved full year 2017 adjusted earnings of nearly $2.8 billion or $3.82 per share. That's $0.37 higher than last year's record results and well above the high end of our original December guidance range of $3.30 to $3.60 and that's despite a $0.32 drag from fuel and currency moving against us; the aforementioned hurricane disruptions; challenges in the China market, including itinerary disruptions involving Korea; and elsewhere, ongoing geopolitical concerns preventing port calls to popular higher-yielding destinations like Turkey. Strong operational improvement contributed $0.58 per share to the bottom line year-over-year, which, when combined with $0.11 of accretion from our share repurchase program, overcame the variety of significant headwinds this year to deliver another full year earnings record. More importantly, we achieved return on invested capital of 9.4%, keeping us on track to achieve double-digit return on invested capital in 2018 and beyond. These strong results affirm the efforts of our 120,000 team members whose commitment and passion enable us to exceed the expectations of nearly 12 million guests annually. And also, a credit to our tens of thousands of valued travel agent partners who support all our brands. It is through their collective efforts that we delivered such strong earnings. And we embark upon 2018 with booking volumes and pricing both ahead of prior year. It was reinforcing to see another year of constant currency revenue yield growth, finishing the year up 4.5%, demonstrating a consistent pattern of healthy revenue yield improvement. We drive revenue yield growth by creating relative scarcity through each of our brands' success and increasing demand in excess of measured capacity growth via ongoing guest experience efforts coupled with our multiple brand marketing efforts and continuing public relations programs. In fact, this quarter, we launched meaningful efforts on multiple fronts, which we expect will pay dividends in 2018 and beyond. On the guest experience side, just last month, we debuted the OCEAN experience platform featuring Ocean Medallion on Regal Princess. The OCEAN experience platform may be the most ambitious and extensive IoT-based innovation on the planet. We're having fun seeing the guest reactions. Our crew is ecstatic and we're experiencing Net Promoter Scores among the highest in our fleet, but it is still early days and only a limited number of guests have experienced elements of Ocean Medallion so far. We're fine-tuning and enhancing the platform based on real-time learning as we prepare for full rollout aboard Regal Princess in the first calendar quarter 2018. This past quarter, we also introduced PlayOcean, our proprietary mobile gaming portfolio. PlayOcean taps into the growing interest in mobile gaming by offering a selection of original games that can be played at home and onboard select ships. We have not just extended gaming off the ship, but we are making gaming more immersive onboard. And on the public relations front, just yesterday, we announced a new partnership with Univision to develop the first O·C·E·A·N primetime series, 'La Gran Sorpresa'. [Foreign Language]. 'La Gran Sorpresa' will be aired in early January, well-timed to coincide the beginning of wave booking season. Univision is the country's most-watched Spanish-language TV network catering to the more than 54 million Americans who identify as Hispanic. The cruise vacation experiences shared in 'La Gran Sorpresa' align wonderfully with the core values of the Univision audience, focusing on multi-generational family togetherness fun and passion for life. Now this announcement comes on the heels of our launch of OceanView, our own proprietary digital streaming network featuring compelling experiential content 24/7 and currently available on major digital platforms, including Apple TV, Amazon Fire, Roku as well as onboard our ships. OceanView launched simultaneously with our 2 new proprietary original content digital productions, GO and Local Eyes. And they build upon our 3 award-winning television shows, "The Voyager with Josh Garcia" on NBC, "Ocean Treks with Jeff Corwin" on ABC and "Vacation Creation" with Tommy Davidson and Feczko, also on ABC, all in their second season. Our network series are the most popular travel-related shows on TV. Today, this increasingly popular roster of U.S. original content television programs has garnered over 100 hours of cumulative airtime and reached an audience of over 200 million viewers. Going forward, our portfolio of 7 O·C·E·A·N original series distributed across major networks, major digital streaming platforms and on our ships ensure that over 4 million potential guests per week see that cruising is the best way to access the people, to access the places and to access the cultures of the world. Other successful PR efforts include the premiere earlier this month of the major motion picture "The Greatest Showman" on Cunard's Queen Mary 2; Holland America's featured cruises in partnership with O Magazine, including Oprah's on-voyage on Eurodam in Alaska earlier this year; and in Italy, another commercial for our Costa brand featuring Shakira will launch on Christmas Day, continuing a highly successful marketing campaign, and that's just to name a few. All these efforts resulted in positive media coverage in 2017. For example, in U.S., that was 10% above 2016's record levels and our highest share of voice to-date with Carnival Corporation brands carrying 3 quarters of the industry's positive coverage. Again, these efforts are all engineered to reach audiences multiple times in multiple ways to help drive demand for our brands, ultimately leading to higher yields. There have also been a number of significant developments in our strategic fleet enhancement plan, which is an important part of our measured capacity growth strategy and includes replacing less-efficient ships with new more efficient vessels. During the year, we introduced 3 state-of-the-art new ships; signed agreements with Fincantieri to build 3 additional new ships; and as previously announced, our joint venture for the Chinese market with CSSC, the China State Shipbuilding Corporation ordered for delivery in 2023 the first-ever cruise ship to be built in China. So we remain on track with our strategic fleet enhancement program and look forward to the delivery of Carnival Horizon in March, Seabourn Ovation in April as well as AIDAnova and Nieuw Statendam both in November. At the same time, we signed agreements to sell 2 ships expected to leave the fleet next spring, keeping us on pace with our historical average of removing one to 2 ships per year. Also, we expect net capacity growth to be 1.9% in 2018 and, in keeping with our philosophy of measured capacity growth, around 5% compound annually through 2022 as new ships replace some existing capacity. We also realized a number of other accomplishments that position us further along the path to sustained double-digit return on invested capital, including 2 of our brands operating cruises to Cuba, our contemporary Carnival Cruise Line sailing from Tampa and our premium Holland America brand sailing from Fort Lauderdale. The continued rollout of our new state-of-the-art revenue management system across 6 of our brands to approximately 90% of those brands' inventory by spring of 2018 to further facilitate yield uplift. We also accelerated progress on our cost containment efforts, delivering more than $100 million of cost savings in 2017 and more than the $75 million included on our original 2017 guidance, which brings the cumulative savings to-date to approximately $300 million. We're planning another $80 million of savings in 2018. Importantly, we continue to make meaningful progress on our 2020 sustainability goals focusing on environmental, safety, labor and social performance. We have already reduced our unit fuel consumption by 29% since initiating the effort. We remain committed to ongoing reduction in air emissions with, during 2017, the delivery of AIDAperla, our second cruise ship to be powered in-port by environmentally friendly liquefied natural gas; and the keeling of AIDAnova, the first of 7 all-LNG ships on order. And in 2017, we joined pledges to support the advancement of women's leadership and diversity in the workplace drafted by Catalyst, the leading global nonprofit focused on expanding opportunities for women; and to support and encourage diversity in the workplace drafted by the Executive Leadership Council, the leading global organization working to empower African-American corporate leaders. We also launched our first dedicated sustainability report website to expand our sustainability reporting. Our commitment to continuous improvement and help environment, safety and security result in our being ranked in the top quartile of the 100 Best Corporate Citizens by Corporate Responsibility Magazine as well as recognition for our sustainability report, which was ranked #1 globally by Corporate Register. We delivered in 2017 over $5.3 billion of cash from operations, returned a significant portion to shareholders and have increased the quarterly dividend twice in the past year. We distributed a total of $1.1 billion through our annual dividend and invested another nearly $600 million in our ongoing buyback program, bringing our cumulative repurchases to-date to $3.2 billion in just over 2 years. Of course, we were able to accomplish this while maintaining our high investment-grade credit rating. So in summary, in addition to our record results, we had many other great accomplishments this year to reinforce our journey to sustain double-digit return on invested capital. Looking forward, our booked position is strong heading into 2018. Despite the disruption in bookings, the fundamental strength of demand enabled us to withstand the hurricane malaise, leaving us well positioned for continued revenue yield improvement in 2018 with both occupancy and price still ahead of the prior year. On our last quarterly call, we indicated we could be patient as we waited for the recovery in bookings post-hurricanes and I believe this approach enabled us to maintain pricing integrity while at the same time aggressively stimulating demand through, among other efforts, our industry-wide campaign, the Caribbean is open, which created 5 billion positive media impressions. We are projecting revenue yield to be up another 2.5% in 2018 on top of the tougher comparisons with this year's success based on our proven demand creation and yield management efforts. At the same time, we continue to contain costs. In 2018, at the midpoint of our guidance, despite an $0.08 per share negative drag from a combination of fuel and currency, we expect to deliver an improvement in earnings of $0.33 per share. We remain committed to achieving increased consideration for cruise vacations and continued investment in our guest experience to create additional consumer demand in excess of measured capacity growth while at the same time continuing to return cash to shareholders. I am very proud of all the progress our teams have made in 2017 and I am genuinely excited for our prospects as we embark on 2018. Look, we're working very hard and we remain on track to deliver double-digit return on invested capital to shareholders in 2018. With that, I'll turn the call to David.

Thank you, Arnold. Before I begin, please note all of my references to revenue, ticket prices and cost metrics will be in constant currency unless otherwise stated. I'll start today with a summary of our 2017 fourth quarter results, then I'll provide an update on current booking trends for 2018 and finish up with some color on our 2018 December guidance. Our adjusted EPS for the fourth quarter was $0.63. As Arnold indicated, this was $0.16 above the midpoint of our September guidance. The improvement was primarily revenue-driven, $0.11 favorable, as increased net ticket yields benefited from stronger pricing on closed-in bookings on both sides of the Atlantic while onboard and other yields continue to benefit from a variety of our ongoing efforts. $0.04 was due to a combination of lower net cruise costs without fuel, fuel consumption and depreciation expense. We also benefited by $0.01 from the net impact of fuel price and currency. Now, let's turn to the fourth quarter operating results versus the prior year. Our capacity increased 1.5%. The North American brands were essentially flat while the European, Australia and Asian brands, also known as our EAA brands, were up over 3.5%. Our total net revenue yields were up 4.2%. Now, let's break apart the 2 components of net revenue yield. Net ticket yields were also up 4.2%. This increase was driven by our North American brands deployment in the Caribbean, late-season Alaska and Europe as well as our EAA brands deployment in Europe, the Caribbean and Australia. These increases were partially offset by decreases in our China deployment as previously indicated. Net onboard and other yields increased 4.1% with increases on both sides of the Atlantic. Net cruise cost per ALBD, excluding fuel, were up 6.1%, which was in line with our September guidance driven by higher dry-dock days, hurricane impacts and the seasonalization of other expenses between the quarters. In summary, our fourth quarter adjusted EPS was slightly less than last year's record fourth quarter with the strong 4.2% revenue yield improvement worth $0.19 being more than offset by $0.20 of higher costs due to the seasonalization of costs and the net unfavorable impact of fuel price and currency costing us $0.03. Now, let's turn to 2018 booking trends. Since November, booking volumes for 2018 have been running well ahead of last year at higher prices. At this point in time, the cumulative booking position for 2018, we are ahead of the prior year on both occupancy and price. Let's drill down into the cumulative booked position. First, for our North American brands. The Caribbean program is behind the prior year in occupancy as a result of the disruption we saw in booking patterns for a number of weeks after the hurricane. However, these bookings are at higher prices. As expected, since November, we have seen a normalization in the Caribbean booking patterns. The seasonal European program is considerably ahead of the prior year on both occupancy and price. Alaska is ahead of the prior year in occupancy, albeit at lower prices, primarily due to mix. Second, for our EAA brands. For European deployments, occupancy is nicely ahead at higher prices. For the Caribbean, occupancy is in line with the prior year at slightly higher prices. Finally, I want to provide you with some color on 2018. We are forecasting a capacity increase of 1.9%. As Arnold indicated, our booked position is strong heading into 2018 despite hurricane disruptions, which positions us well for continued growth in revenue yields. For 2018, we are projecting net revenue yields to be up approximately 2.5% on top of the tougher comparisons with our prior year successes. Now, turning to costs. Net cruise cost without fuel per ALBD is expected to be up approximately 1% for 2018. Broadly speaking, there are 3 main drivers of the cost change. First, our forecast is for an average 2 points of inflation across all our cost categories globally. Second, we are planning for a slight increase in dry dock days from 470 days in 2017 to 505 days in 2018, impacting cost metrics by 0.2 point. Partially offsetting these 2 items is about a point of cost-saving benefit from further leveraging our scale. Fuel prices and FX rates are a different picture from what we saw just 3 months ago when the 2018 year-over-year net impact of fuel and currency was a favorable $0.14. Given current fuel prices and FX rates, the 2018 year-over-year net impact of fuel and currency is now an unfavorable $0.08. This is a $0.22 swing in just 3 months. In the end, on a year-over-year basis, fuel prices moved against us $0.16, including the impact of fuel derivatives. This was partially offset by favorable impact of currency worth $0.08. Putting all these factors together, our adjusted EPS guidance for 2018 is $4 to $4.30 versus $3.82 for 2017. I will finish up by sharing with you our current rules of thumb about the impact of currency and fuel prices on our 2018 results. To start with, a 10% change in all relevant currencies relative to the U.S. dollar would impact our P&L by approximately $0.46 for the full year and $0.02 for the first quarter. For fuel price changes, a 10% change in the current stock price represents a $0.20 impact for the full year and $0.05 for the first quarter. Fuel expense in our guidance is $1.5 billion for the full year. The third rule of thumb relates to our fuel derivative portfolio. A 10% change in Brent would result in a $0.05 change in realized losses on fuel derivatives for the full year and just $0.01 for the first quarter. And now, I will turn the call back over to Arnold.

Thank you, David. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Robin Farley with UBS.

Obviously a great quarter. I wonder if you could give us a little bit more color around what drove that closed-in upside in Q4 just as we think about your guidance for 2018 because when you last guided, you were kind of well into the quarter so it seems like a lot of price uptick in that last kind of 10% to 20% of bookings, especially since it was at a period when we would have maybe expected Caribbean bookings to be disrupted. So I wonder if you could give us a little color on how much of it is your new reservation system? How much of it is maybe the FEMA charter that took supply out at the last minute or just kind of any color around what drove that?

Robin, first of all, the FEMA charter is immaterial to yields and the ship was basically fully sold and we did it to support the recovery efforts. And there's no big benefit on that one to us financially from where we would have been otherwise. But overall, we just had strong demand in all the markets, including in the Caribbean outside of the direct hurricane-impacted areas, and so we had strong pickup there. The revenue management system would have all preceded all that, but of course, the fact that we were holding on prices and were so well-booked certainly contributed, but we just saw strength in a lot of markets.

Yes. The only thing I will add to that is we also saw a strength in the onboard. I indicated the onboard yields were up 4.1%, which was considerably more than we had guided to.

Our next question comes from the line of Steve Wieczynski with Stifel.

I guess, the first question is around your 2.5% yield outlook for 2018. It's the same exact guidance you started 2017 with and you finished the year kind of north of 4%, which was a nice split of ticket and onboard. So, I guess, as we look to 2018, given how solid trends seem to be right now, is it fair to say that if the booking environment and the economy kind of stay in the same ballpark, there should be upside to your yield assumption? And maybe a better way of kind of asking that is if you look back to 2017 and your initial yield guidance, what was the bigger surprise to you guys in terms of how that 2.5% got to north of 4%?

Steve, look, we always give our best guidance, as you know, and we're projecting another year of strong yield on top of what is now a lot tougher comparisons because of the success we had in 2017. It's really early in the booking process. Wave season hasn't even started yet. And like every year, we do try to factor in that there will be unforeseen future events, but overall, we stand by the guidance. It is on top of tougher comparisons. I wouldn't say there were big surprises in 2017. It's just the way things flow. We had a lot of headwinds in 2017, as you know, and we were able to overcome them by increasing demand for the cruises and by having factored in -- anticipating there would be some unforeseen events.

Okay. Got you. And second question around supply growth, and that really seems to be the biggest overhang out there right now with investors. I guess, how do you guys counter that concern? And I know, Arnold, you said you think you're going to grow your capacity around 5% a year, which I would assume is on a gross basis, but that doesn't include things like possible retirements and -- which I think you said would be 1 to 2 per year and also the fact that a lot -- certain parts of your capacity growth are really dedicated to a very specific audience or demographic like AIDA. So, I guess, what I'm getting here is if you kind of start stripping out all that stuff, how do you actually view your core capacity growth going forward?

We're very comfortable with our capacity growth in the coming years. We've been consistent with our execution around measured capacity growth and we're going to stick with that. We're spreading that growth over a number of brands, an increasing number of geographic regions and we're very careful where we add capacity. Of course, we're going to try to drive yield increases at rates that we've recently achieved or even higher. In the end, that may or may not happen. We have a bit of a cushion as capacity itself is a driver for earnings growth and it's a driver for cost containment. So we can achieve similar earnings growth rates at lower rates of increases in yields. Of course, our objective though is to get even greater earnings growth by driving both capacity and the yields.

Okay. Great. Then, a simple housekeeping question for Beth or David. Can we just get your capacity for -- by quarter for this year? And then, also what -- how you guys are thinking about '19 and '20 and then CapEx as well?

Q1 is up 2.2, Q2 is 1.3, Q4 -- Q3 is 1.7, Q4 is 2.6. That's a total year of 1.9. CapEx for 2018 is $4.4 billion, 2019 is $5.1 billion, 2020 is $4.8 billion and 2021 is $3.9 billion. I think I missed one of your questions.

'19 and '20 capacity outlook?

'19 is 5.5 for us and 7.4 for '20.

Anecdotally, Steve, the industry managed a 13% industry-wide growth and 11% growth plus in the Caribbean in quarter 3 of 2017 and we still drove strong yield improvement. I just want to reinforce that we're totally focused on measured capacity growth and we're totally focused on achieving and sustaining double-digit return on invested capital. So if for some reason we fail in creating the demand, then we're fully prepared to accelerate retirements. And with our scale, that matters. And so we're focused on growing earnings, not just the number of ships.

Our next question comes from the line of Harry Curtis with Nomura Instinet.

I wanted to just follow-up on the last question. Particularly as we look into the somewhat higher growth in -- supply growth in 2019 and 2020, are there segments that you've identified, kind of demographic segments that are driving the new cruisers? Because, Arnold, you'd spent a decent amount of time discussing your global marketing campaigns and I'm just wondering if there are some new segments that you're actually targeting.

We're underpenetrated and the industry is in every market in the world, including the U.S. I'll repeat something I've told you guys many times, if you add up all the cabins in the world, they add up to less than 2% of the hotel rooms in the world. And so we're still very small. Cumulatively, the cruise industry sales, over 25 million people a year, but dentists attracts 24 million towards the year. So we're just small. And so, yes, we're tapping every market segment and we sell in every generation, whether it's millennials, seniors, it doesn't matter, children. So all of those are potential markets for us. We have 9 whirling and cruise line brands. They all cater to a different psychographic mark. You asked about demographics. We are distributed around the world. We even distribute it here in the United States. With the Carnival brand, we sail out of different markets around the U.S. And so we subgroup the markets demographically that way, location-wise, but primarily we're focused on the guest experience and the psychographic placement. So we think there's opportunity and we've demonstrated it so far to continue to grow demand for cruise at a faster rate than we can grow capacity. And we do have constraints on capacity growth, a limited number of shipyards, which is a good thing in the end, and we take advantage of that to outpace demand with the capacity that's available.

And keep in mind that the backdrop is that travel and tourism has been growing about 4% a year and is expected to continue to grow at that rate. So we're in a very good position in a growing industry. And we -- as Arnold said, we expect to do very well with -- and very comfortable with our capacity growth.

That's terrific. And just a quick follow-up, turning to China. Arnold, do you see the market evolving into a growth market at some point in the next year or 2 as opposed to it sort of being a shoppers' commuter market?

Yes. Look, China with -- the industry had a tough year in China this year, but I think the long-term prospects are outstanding. In 2018, there is going to be limited capacity growth. In fact, I think the industry is flat. We are expanding our distribution. I know others in the industry are doing the same. We're working very closely with our existing distributors there to connect that latent demand with the few ships that are there. We're still very return-focused. We have no hesitation to relocate a ship if necessary for it to, overall, have a more accretive return for our business. And just keep in mind it's still so small. Today, it represents only 5% of our capacity. Maybe 1 million cruise [ doors ] out of 130 million outbound tourists in China. So everything is really tiny. To predict, I don't know, obviously, everybody's more optimistic. Things seem to be settling down a little bit with the expanded distribution. We factored in some improvement in our guidance, but we'll just have to wait and see.

I guess what I'm after is, do you see a demand in, say, the next several years where the market evolves more towards tourism and less towards shopping?

I think, absolutely, the market is already there for tourism. You go anywhere in the world, you will find mainland Chinese behaving like tourists from any other place in the world. So yes, the cruise business started out early with a few local destinations there, close-in destinations, which were very shopping-oriented. But there's no question that mainland Chinese are showing up on ships all over the world now, not just the ships homeported in China. And the ships homeported in China, we'll see, over time, itineraries expanded to go to more distant places for the purpose of tourism versus getting a good deal on a merchandise item.

Our next question comes from the line of Felicia Hendrix with Barclays.

Arnold, I'm going to go at this maybe from a different angle because people want to understand this. So you faced incredible challenges in the fourth quarter. You posted better-than-expected results. So a lot of people are just wondering why we might be seeing a large deceleration in net yield growth in the first quarter. Are you assuming any kind of hurricane impact in there? David, you kind of did talk a bit about the Caribbean is behind a bit in occupancy, but at higher prices, and I'm assuming that occupancy isn't super significant. But -- so wondering if it's just being conservative. Or is there fundamental reason why the first quarter should see that kind of deceleration?

Well, again, we've got tougher comparisons year-to-year now, and we're giving out our best guidance. In terms of the hurricane impact, clearly, there's been some kind of impact. But frankly, the markets have recovered. It's hard for us to really identify what impact. I'm sure there are some individuals that are shying away from the Caribbean still despite the industry efforts and our efforts in each of the other cruise lines efforts. People know the Caribbean is open and the Caribbean is for everyone. And -- but having said that, we see continued strong bookings in the Caribbean. And we give you our best guidance, and the guide looks too less conservative. But again, there are -- we always try to factor in things that can go wrong. And obviously, a lot of things happened this year. A lot of things happen every year, and so we try to account for that.

Okay. That's helpful. And then, David, can you help us understand the quarterly cadences net cruise costs ex fuel for '18? So we know 2.3%. So the -- I'm sorry, 2% to 3% for the first quarter. And 1% for the full year fourth quarter, I'm assuming, faces easier comps. Perhaps that could be a negative growth rate. So just wondering if you could help us understand the cadence for yields quarterly beyond the first quarter.

Sure. The increase in dry-dock days is really driven in the second quarter. So it wouldn't surprise me if the second quarter was up probably double the first quarter on a per ALBD basis. But you will see a significant decline in net cruise cost in the back half of the year as a result of the lower dry-dock days, particularly in the fourth quarter.

Okay. That's very helpful. And then, Beth, just can you give us the D&A and interest expense guidance for the first quarter and the full year 2018?

D&A is $460 million to $470 million for the first quarter and $2.02 billion for the year. Interest is $40 million to $50 million for the quarter and $180 million to $190 million for the year.

Our next question comes from the line of David Beckel with Bernstein Research.

I think I'll actually take a stab at Q1 for the third time here just a slightly different way, but my question is an amalgamation of a couple of comments you made about bookings since November being quite a bit faster than last year and occupancy in the Caribbean being behind. I'm wondering if the current pace does continue, say, indefinitely through Q1, at what point would you be caught up on occupancy in the Caribbean?

As Felicia has indicated, I mean, we're not talking about a significant difference in occupancy. We did say it was behind. We are getting good booking trends. They are -- they have returned to normal, and so we're just in very small range of differences here. And as I had indicated, the prices are up, so we feel very comfortable with our guidance for the first quarter. And as we have told everybody, it is our best guess, and we will continue to work hard to do better.

We don't have any concerns at this point though about the momentum or the bookings in the Caribbean. We're doing very well there, and we're pacing things the way we want to pace them, and we feel really good about it.

That's great. And second question about the revenue management system. I can imagine it's probably impossible to try to quantify exactly the extent to which that helped your yields this year, but it does seem to be a nice source of potential upside that investors can think about for next year. Is there any way you can try to dimensionalize the impact for us, either on basis points or just conceptually how it'll help you -- or to the extent to which it will help you in 2018 versus 2017 outside of it just being rolled out on more...

Well, I'm sorry, I didn't mean to cut you off. Finish what you were asking. I'm sorry.

Oh, no. I was done.

Okay. Yes, conceptually, we can answer it. We won't dimensionalize it with percentages or anything. But conceptually, we're going to go to 90% of the inventory for those 6 brands going through the process utilized on that tool in the spring. So we're going to have a lot more inventory going forward being impacted in 2018 with the whole system, which includes the tool, the new revenue management tool. So we're expecting, obviously, that to be a positive contributor. And again, we've given the guidance for the year. So -- but the bottom line is we're 4 to 5 in our beliefs of achieving what were set because of the incremental amount of inventory that's going to be moving through the system that includes that tool.

I would like to add that in -- by the spring when it's rolled out, a lot of 2018 will be behind us, so to the extent that we have a bigger benefit in 2019 from the tool itself. Keep that in mind.

Thank you, Beth.

Our next question comes from the line of James Hardiman with Wedbush Securities.

Not sure if you have any more insight than we do in terms of South Korea, maybe get an update there. And I guess, what does it look like if South Korea opens up over the course of the year? Are there going to be other costs associated with switching back over to some of those destinations? Is it assumed that you would more than offset that with any yield benefit? And I guess, what, if anything -- how do you factor that into guidance, if at all?

Yes, I think anything that allows more destinations that encourages travel is a positive, clearly. Itinerary planning has been set. That doesn't mean that things wouldn't change if there were opportunities to do so. So opening it up would only be a positive. How much of a positive, it's hard to say at this point. It would depend on a number of factors. But I'll say about what I said before, keep in mind, it's, overall, about 5% of our capacity. We're planning -- we accommodate a lot in the guidance, and so something like that would just be a small incremental positive, probably wouldn't be able to measure [indiscernible].

And in the end, I mean, that's -- it's a forecast. And we always get a bunch of small positives and a bunch of small negatives. We're not all-knowing, and we give you the best guidance we can. So hopefully, it does open up and that materializes for us.

But generally, unlike taking South Korea offline, which presumably was a hit to yields, by changing existing itineraries, you're not going to take a yield hit? If anything, you should get a yield benefit, correct?

I don't think we'd change anything to take a yield hit. That's not normally in our modus operandi. So we would definitely expect an improvement.

And we could do that relatively quickly as well, change itineraries in -- over time.

Got it. And then as I look to the rest of the world, this is the first year in a while that established markets are getting all over the capacity. Is there anything that you're seeing that suggests that any of these established markets are choking on that capacity? The guide looks pretty encouraging, but obviously, that capacity doesn't all come on at the same time. So as you look to maybe portions of the year where new ships are coming online in the Caribbean or in Europe, are you seeing any weakness in pricing trends as that happens?

We control our capacity increases. As we mentioned, we got only 1.9% in 2018. And we, as you know, book well out and well ahead. So the quick answer to your question is no, we don't see any weakness or anything. But of course, we monitor very closely. The assets are mobile, and we will do what we need to do. But at this point in time, absolutely, things are, as we've indicated, positive.

Our next question comes from the line of Greg Badishkanian with Citi.

When you reported third quarter results back in September, you noted that cumulative bookings were well ahead year-over-year on price and occupancy for the first half of 2018. In this quarter, you mentioned that the full year 2018 was ahead of prior year at higher prices. So I'm just wondering the different phrasing. Is that just because the different time periods that you're comparing are just not comparable? And also, just how do you feel now about 2018 versus back in September? How much more confident are you of achieving or beating that 2.5% net yield?

Yes. Keep in mind, we use adjectives to try to just give a relative sense of things, but we have to have a point in which we cut the adjective off. So you can -- you're talking about very small nuances and small changes from one period to the other. The difference being in September, I quoted the first half of the year. This year, I quoted the full year. But we're really dealing with very small changes. In terms of our confidence in 2018, we were confident in 2018 back in September. We're even more confident now. It's a quarter later. We've got a lot more bookings on the books for 2018. Prices are higher. The booking momentum, particularly in the Caribbean, has normalized itself. So we feel very good about 2018. The only big difference between September and today was the -- what I talked about, about fuel and currency. There was a big swing in my comments. I indicated that between fuel and currency from 3 months ago to today.

Just to pile on a little bit. We're at a better booked position year-over-year and feel really good about that. When you hear the adjectives and stuff, relative rates of growth and all that come into play. But overall, we're in a better booked position. We definitely, as David said, feel even better about the guidance now than we would have a quarter ago, and I'm looking forward to a great 2018.

Our next question comes from the line of Tim Conder with Wells Fargo Securities.

A couple more, and I think looking more to '19 because, obviously, a lot of the itineraries are set for '18 and barring any emergency needed change. But looking to '19, you've started to roll out a few of these. What are your thoughts? We're seeing a little bit of hints. But what are your thoughts on returning portions to the Eastern Med, which historically and the Eastern Med has provided a higher yield than the Western Med? And then, I guess, just in general, also, what you're seeing for '18 on Southern European sourcing? How has that trended over the last year? Because that had been one of the weakest areas from a source market perspective for the industry over the last couple of years.

Yes. Concerning the 2019 and returning to the Eastern Med, you're right. I mean, those are some of the higher yielding itineraries. We would love to have them back. At this point in time, we just have to monitor and see what happens. The world is a volatile and ever-changing place. And in the end, we take a guess where they're willing to go and they want to go, and so we're cautiously optimistic but don't feel comfortable predicting at this point.

And as far as your second question is concerned, in Southern Europe, remember that our cost of brand, their focus is on Southern Europe: Italy, France and Spain. We talked about -- we don't go into details by brand. But a number of times, we've talked about seeing an improving economy in the southern part of Europe. For a long time, we had talked about it bouncing along the bottom, but we have started to see some improvement. And we've seen Costa has done very well in 2017, and we expect it to do well in 2018 in addition. So we're comfortable and very confident and happy to see the improvement in that part of the world.

Okay. And along that line, David or Arnold, whoever wants to take this, the booking curve. How is the booking curve on a year-over-year basis? It sounds like given the -- you're booked at higher levels of occupancy globally. Sounds like it's still stretching out. But just any color as to where that is? And then on fuel, looks like your fuel collars that you've had in place for a few years will finally roll off post '18. Any update of internal thoughts as it relates to hedging, collaring? Anything going forward with fuel that you can share?

Thank you. Yes, concerning hedge and a collar, we've never hedged. We have done the collars. We -- as you point out, we have them through 2018. We'll monitor it closely. We do it to protect against spikes and rises in fuel cost primarily from a cash management standpoint and what have you. So we'll look at our overall situation and make a determination about beyond 2018. And we look at it constantly, so we'll stay on that. But right now, we are covered through 2018, as you pointed out, but we've never hedged at this point in time and have no intention to.

So -- and as far as the booking curve is concerned, I mean, we did say we were further ahead than last year. But again, we keep on evaluating our booked position. We're always looking for the optimal point in the booking curve, and that changes over time. And so we'll continue to push out the booking curve as long as it makes economic sense, and we'll continue to look at how to maximize revenue by balancing price versus occupancy at all points in the booking curve.

Would you say it's optimized at this point? I mean, does it make sense to push it out further?

I'll take that one. It's never optimized. We're always trying to get to that. Hopefully, asymptotically, we're approaching optimization. We're not there yet, so we're not chasing it.

We're in complete agreement on that. We'll never get to the maximal point. Always can do better.

Our next question comes from the line of Jared Shojaian with Wolfe Research.

So what EPS level do you need for double-digit ROIC? Is it the midpoint of your guidance? Because I'm kind of struggling to get there. Is the invested capital denominators going up, which I would think it would be with over $4 billion in CapEx next year? So can you help me think about that a little bit?

Yes, you're right. The midpoint of the guidance would definitely have us at double digit, and the high end of the range would put us comfortably above, and the lower end of the range would cause us to scramble to get to the actual goal of double digit.

Given the $34 billion, $35 billion investment base we have, takes about $350 million to add a point of ROIC. Or 1/10 of a point is $35 million, which is roughly $0.05, give or take. So that's just some rules of thumb that you can go by. But I will caution you because our balance sheet does move with currency, so all -- just as our P&L does. So all of these numbers move over time and these calculations we made or the currency levels that we have included in our guidance in the press release.

Okay. And can you just confirm, are you ahead on rate and occupancy for each quarter of 2018? And then can you just help us think about the yield cadence by quarter for next year?

Yes. We are ahead for each quarter. But at this point, it is a little early to give guidance for each of the quarters. The first -- the guidance for the first quarter, the midpoint was 2% in comparison to the 2.5% for the full year. So we are looking to do a -- our guidance includes better yields in the first quarter, in the second, third and fourth. But it's a little early for us to try to break that down by quarter. Wave season hasn't even started yet, and there's a lot left to go, so I'm hesitant to give that kind of detailed guidance.

Okay. And if I could just sneak one quick one in here. Your 2018 guidance, the gap between the as reported and the constant cruise cost is larger than the gap between the as reported and constant yield. That's normally very unusual. So can you just explain what's going on there?

The one thing -- you will see differences there over time, and a lot of it has to do with how much is on the books and what currency. Because when we get the payments, the currency gets locked in, so there are some differences there that can be reflected over time.

Our next question comes from the line of Patrick Scholes with SunTrust.

Wonder if you can provide a little bit more on the recent trends in booking and pricing for China. I'm wondering how that has -- what the trajectory has been, how that has been for you over the last 3 months as it relates to cruises in 2018?

So we have been making lots of changes in China, as Arnold discussed. We're talking about increasing the number of distributors. We've moved away from charters and more towards group business. And so overall, as Arnold had indicated, with the lower capacity next year, we were looking to see improvements in China. We're seeing them in booking patterns, and we expect to see hopefully that in the actual results as the year progresses.

Okay. Second question here, you talked on the prepared remarks about strength in onboard spending over the past quarter. Were there any particular promotions or programs that drove it? Any new ones that we can see continuing over the next year?

There were a variety of things in all areas. I mean, beverage, casino, shore excursions, I mean, lots of different things, retail shops where we've done throughout the year. And by the way, we're not stopping. I mean we've got a lot of efforts going on. I don't know if you saw the recent press release on Carnival Cruise Lines, all the different things they're doing on the retail side. So our teams continue to focus on that, and we believe there's a lot of opportunity in 2018 and beyond.

In the 45-plus year history of the company, it's only been 1 year where onboard revenues didn't increase year-over-year, and I'd say we have a number of initiatives underway now that should keep that trend going in the positive direction. Rate of increase and stuff -- that bounces around a little bit, but we'll be growing onboard revenues.

Our final question will come from the line of Vince Ciepiel with Cleveland Research Company.

You mentioned a return to normal in terms of booking demand. Can you help us better understand what the trajectory of that has been? Was it a bounce back in October? Or has it been a more linear build each month?

Yes, the hurricanes hit in early to mid-September, and we saw the disruptions. And so basically, the disruptions occurred in late September and October, and it bounced back. And by the time -- what we were indicating is by the time we got back to early November, we had seen a return to a normalized pattern.

I think the critical thing was being patient. Obviously, with the hurricanes, there was a disruption. We lost several weeks of what would have otherwise have been bookings, and the trick was to stay patient and not overreact to it. And our teams did that, and we're seeing the benefit of that now. So I really appreciate -- any follow-up question on that? Are you okay?

Yes, I do have. Just thinking longer term into '19 and '20 when capacity becomes a larger portion of the mix, can you remind us how to think about any potential yield benefit from new premium yield in hardware?

Yes. Well, there is a lift for sure with the -- because of economies of scale and cabin mix and so on and so forth, especially as we also retire out some of the less efficient vessels. So there's absolutely a contribution to yield from that. But obviously, the bigger contribution is going to be creating the demand in excess to the supply. And clearly, you can hear from the comments in the call earlier, we're very much focused on that, and you can see it out in the marketplace everywhere. So our goal is to keep cruise out in a positive way, touch people multiple times, multiple ways at least a week, hopefully, a day. So that when it comes time for them to think about a holiday or a vacation that they consider cruise. We know we're helping the industry overall to do that, but because of our position in the industry, we know we benefit disproportionately when we do that. And so that is our focus along with cost-containment and smart capital management. Okay. I want to thank you all for being with us. A sincere happy holidays to everyone. Thank you for your interest in Carnival Corporation. We're focused on delivering double-digit return on invested capital in 2018, achieving or beating the guidance, and we look forward to talking to you guys in between in the next quarter earnings call. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.