Carnival To Post $2.9B Loss in 3Q; Shares Drop 3% In Pre-Market

Shares in Carnival Corp are declining almost 3% in Tuesday’s pre-market session after the cruise operator said it expects to post a $2.9 billion loss in the third quarter, while cruise suspensions tied to the COVID-19 pandemic continue to hurt its business operations.

Carnival (CCL) said the third-quarter net loss includes $0.9 billion of non-cash impairment charges. In a separate statement, the cruise operator announced plans to raise another $1 billion through a share offering.  

As a result of disruptions or halt in cruise operations, the company’s monthly average cash burn rate for the third quarter 2020 was $770 million, in line with the anticipated monthly cash burn rate. In the fourth quarter of 2020, the monthly average cash burn rate is forecast to be approximately $530 million. Overall, this results in an average monthly burn rate for the second half of the year of $650 million.

Providing an update on booking levels, Carnival said that cumulative advanced bookings for the second half of 2021 are at the higher end of the historical range, despite minimal advertising or marketing, indicating demand for cruising among customers.

“Just six months after we paused cruise operations across our global fleet, this past weekend, we successfully completed our first seven-day cruise on our Italian brand Costa. Soon a second of our nine World’s Leading Cruise Lines’ brands will resume guest operations, our German sourced brand AIDA,” Carnival CEO Arnold Donald said. “Our business relies solely on leisure travel which we believe has historically proven to be far more resilient than business travel and cannot be easily replaced with video conferencing and other means of technology.”

Carnival announced that a total of 18 less efficient ships have left or are expected to leave the fleet, representing approximately 12% of pre-suspension capacity and 3% of operating income in 2019.

“We will emerge with a more efficient fleet, with a stretched out newbuild order book and having paused new ship orders, leaving us with no deliveries in 2024 and only one delivery in 2025, allowing us to pay down debt and create increasing value for our shareholders,” Donald said.

The Princess Cruises operator, which ended the third quarter with $8.2 billion of cash and cash equivalents, said it expects to further boost future liquidity.

The stock has this year shed almost 65% of its value following major coronavirus outbreaks on a number of cruise ships, including its Diamond Princess. (See CCL’s stock analysis on TipRanks).

Meanwhile, Merrill Lynch analyst Geoffrey D’halluin last week raised his price target to $18, as he is “rolling forward multiple valuation methodology to FY22E (from FY21E) to reflect more normalized market conditions.”

D’halluin maintained a Hold rating on the stock as he expects recovery to be slow in view of US cruise suspension, which could mean that 2021 will be a wait-and-see year.

“Carnival has capacity to fund its requirement until mid-2021 in an environment with a pause in operations,” D’halluin wrote in a note to investors. “While recent offerings have strengthened group’s liquidity profile, this came at a high cost, impacting group’s bottom line profile.”

The rest of the Street is also sidelined on the stock. The Hold analyst consensus shows 12 Hold ratings and 4 Sell ratings versus 2 Buy ratings. The $15.93 average price target implies 11% downside potential over the coming year.

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