Carnival Corp. Report: Why Stock Keeps Falling Despite Upbeat Industry Resumption Forecasts?

Carnival Corp. (CCL, CUK) recently released its Q2 2021 earnings report and still expects Q2 adjusted net loss of $2 billion. Also Carnival announced that it may sell up to $500 million of ordinary stock through an “at-the-market” equity offering program. Nevertheless, the company emphasized upbeat expectations on resumption of the cruise industry in 2021. All in all, the stock keeps declining.

Carnival Corp. being the world's largest cruise travel operator and a member of the S&P 500 and FTSE 100 indices certainly attracts a lot of attention from all types of opportunity investors. The headquarters are located in Miami, Florida. It is known for its services for vacationers on the company's ships: restaurants, spas, theaters, 5D - cinemas, swimming pools, art galleries, boutiques of world brands and other entertainment, including world-class shows. The company was founded in 1972. Key beneficiary is Ted Erison (Founder). The number of employees is over 120,000 people. The company has 20 subsidiary cruise lines. Millions of passengers travel annually on 24 comfortable liners of the company.

The company's shares are traded on the London (LSE) and American (NYSE) stock exchanges under the tickers CCL (LSE and NYSE) and CUK (NYSE). The company's capitalization is 31.82 billion dollars. After the release of financial statements, the shares fell by -0.4% (and 9.2% since the earnings release) despite it appears that, purely from Covid restrictions standpoint, the cruise restart may ramp up faster than anticipated and J.P. Morgan has Royal Caribbean rated as its top cruise line stock.

Let's look at the results of the company's work:

• 2Q2021 US GAAP net loss of $ (2.1) billion and adjusted net loss of $ (2.0) billion

• Q2 2021 ended with cash and short-term investments of $ 9.3 billion, which, according to the company, is sufficient liquidity to return to full-time operations.

• Customer deposits increased in Q2 2021 compared to the previous quarter.

• The rate of cash burning in the 1st half of 2021 turned out to be better than forecasted, primarily due to the timing of receipts from the sale of ships and changes in working capital.

• 42 ships of eight of the company's total 9 brands have either resumed or announced to resume entertainment cruises by November 30, 2021, representing over 50% of the company's total capacity, with more announcements expected in the coming weeks. In the same fashion, Royal Caribbean (RCL) expects to have all ships in service by the spring at full occupancy, similar to Carnival. New announcements are expected in the coming weeks, which will include more details on the launch of new vessels in fiscal 2021. In line with a planned phased resumption of travel, the company's entire fleet is expected to return to service in the spring of 2022.

• Bookings for all future cruises in Q2 2021 were 45% higher than bookings in Q1 2021.

• Cumulative pre-bookings for the full year 2022 outpace the very strong performance of 2019, despite minimal advertising and marketing expenses.

The company ended the second quarter with cash and short-term investments of $9.3 billion. To date, refinancing efforts have reduced future annual interest expenses by more than $120 million per year. An increase in short-term liquidity to the tune of $1 billion is expected.

Conclusion: although it appears the company is actively working to bring the entire fleet back into service by the spring of next 2022, guest bookings are somewhat lagging. Hopeful investors actively “bottom fished” the industry thereby lifting many cruise line stocks back in November-December last year in an expectation of the industry’s quick recovery, however it looks like customers remain cautious about dynamics of the Covid infections despite accelerating mass vaccination. This is surely a psychological rather than cyclical phenomenon, but it needs further research in order to adjust existing forecasts.