When a business makes essentially no revenue for nine months and is unlikely to improve for the next three months, that company’s stock price is sure to take a beating. These are the conditions that the world’s largest cruise ship operators have faced since March of this year.
Carnival Corp. & PLC (NYSE: CCL) stock has dropped 58% since the beginning of this year and closed Tuesday down nearly 55% over the past 12 months. Earlier this month, the company canceled all sailings from U.S. ports through the end of January, with cancellation periods extending through March at some ports.
Carnival CEO Christine Duffy even advised crew to find other “part-time or temporary work” while the company prepared its ships to return to operations. That return, she said, “would be a gradual one” and that 2021 will be a year of transition “back to our operations.”
In late November, the cruise ship operator closed on private offerings of $1.45 billion in senior unsecured notes due in 2026 and €500 million in senior unsecured notes due in 2027. Both carry interest rates of 7.625% and were rated B2 (speculative or, more commonly, junk) by Moody’s Investors Service.
When Carnival reported third-quarter results in October, quarterly revenue from passenger ticket sales was zero. For the first nine months of the fiscal year, passenger ticket sales were down by two-thirds. For the year to date, Carnival’s net loss totaled just over $8 billion, compared with a net profit of $2.6 billion in 2019.
The good news for Carnival is that since the U.S. Centers for Disease Control and Prevention (CDC) lifted its no-sail order in late October, the share price has risen by nearly 75%. Since April, when the share price plummeted to around $8, the shares have added more than $13.
The announcement of vaccines to control the spread of COVID-19 also provided a boost for Carnival and competitors Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) and Royal Caribbean Group Ltd. (NYSE: RCL). Norwegian shares are down only slightly less than Carnival’s for the year to date, and Royal Caribbean’s shares are down about 44%. Shares of all three plunged by around 80% in late March and early April.
Cruise line operators are burning through mountains of cash. According to a November report in Cruise Industry News, Carnival is spending $530 million a month in the fourth quarter, while Royal Caribbean is averaging a cash burn of $270 million monthly. Norwegian is burning just $175 million a month, but that’s the highest burn rate on a per-ship basis.
Carnival stock traded up fractionally to $21.58 on Wednesday. The consensus price target on the stock is $17.77.