Carnival (CCL) Down 2.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Carnival (CCL). Shares have lost about 2.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Carnival due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Carnival Posts Wider-than-Expected Q2 Loss

Carnival reported second-quarter fiscal 2019 results, wherein both earnings and revenues missed the Zacks Consensus Estimate.

In the second quarter, the company reported loss per share of $3.30, wider than the Zacks Consensus Estimate of a loss of $1.83. In the prior-year quarter, the company had reported earnings per share of 66 cents. Revenues came in at $740 million, which missed the consensus mark of $1,301 million. The top line also declined sharply from the prior-year quarter’s $4,838 million due to coronavirus-induced shutdowns.

Segmental Revenues

Carnival generates revenues from the Passenger Tickets business, and the Onboard and Other as well as the Tour and Other segments. Revenues at the Passenger Tickets business segment totaled $446 million compared with $3,257 million in the year-ago quarter. Onboard and Other revenues (inclusive of Tour and Other revenues) totaled $294 million compared with $1580 million in the prior-year quarter.

Balance Sheet

Carnival exited the fiscal second quarter with cash and cash equivalents of $6,881 million compared with $518 million as of Nov 30, 2019. Trade and other receivables summed $604 million compared with $444 million as of Nov 30, 2019. Long-term debt amounted to approximately $14,870 million.

Bookings for 2021 Improve

Following the pause in operations since mid-March due to the coronavirus pandemic, Carnival’s AIDA Cruises recently announced resumption of sailing from August. Bookings for the same are also being taken.

The company intends to ramp up operations in a phased manner, keeping in mind the health and safety of its guests and crew members. Notably, its collaboration with WHO, German Robert Koch Institute (RKI) along with other governmental and health authorities is noteworthy.

Owing to the incentives and flexibility in terms of bookings, the company is witnessing solid demand in advance bookings for 2021. Notably, offers like onboard credits, reduced or refundable deposits and future cruise credits (FCC) bode well.

As of Jun 21, 2020, cumulative advanced bookings for 2021 remained within historical ranges, while prices ranged from low to mid-single digits, on a comparable basis.

Fleet Size Update

Coming to fleet size, Carnival expects capacity to get moderated by the phased re-entry of its ships, the removal of capacity from its fleet and delays in new ship deliveries.

Carnival’s president and CEO Arnold Donald stated, "We have been transitioning the fleet into a prolonged pause and right sizing our shoreside operations. We have aggressively shed assets while actively deferring new ship deliveries.”

Notably, 13 ships are expected to be unloaded in the near future, representing approximately a 9% reduction in current capacity. Also, the company expects five ships (out of nine) to be delivered before the end of fiscal 2021 (which were earlier scheduled for delivery in fiscal 2020 and 2021). Also, deliveries for fiscal 2022 and 2023 have been deferred. As a result of these initiatives, the company has reduced operating costs and capital expenditures by more than $7 billion on an annualized basis. It also intends to save more than $5 billion over the next 18 months.

Other Updates

Despite the virus triggering a catastrophe in terms of lives lost and financial impact, Carnival appears resilient enough to navigate through the uncertain times. Notably, the company has taken significant actions to preserve cash and secure additional financing to maximize its liquidity.

The company has reduced administrative expenses and non-newbuild capital expenditures by $1.3 billion for 2020 and expects to cut newbuild capital expenditures by more than $600 million for 2020 (net of export credit facilities).

It has also raised more than $10 billion through a series of financial transactions which include senior secured term loan facility. The company has also negotiated Debt Holiday amendments, deferring certain principal repayments, otherwise due through March 2021. Additionally, the company stated that it has $8.8 billion of committed export credit facilities that were initially assigned to fund ship deliveries planned through 2023.

Notably, with an expected average cash burn rate of $650 million per month, the company stated that it has ample liquidity to survive an extended zero revenue scenario for some time.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -13.13% due to these changes.

VGM Scores

Currently, Carnival has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Carnival has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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