Observers of the beleaguered cruise industry won’t be surprised by the third-quarter numbers posted recently by Carnival (NYSE:CCL). Holders of Carnival stock, though, can find some solace in the strength of the cruise line’s future bookings.
For Carnival and other cruise companies, the near-term outlook is as tough as a cheap cut of poorly prepared beef. The novel coronavirus, a microscopic bug that is as tenacious as it is deadly, has smashed the global travel industry. Among the hardest hit have been cruises, which were already notoriously susceptible to other viruses that ruin the trip for those aboard the packed ships.
To use an already over-utilized pun, the seas are stormy for the owners of Carnival stock.
Push and Pull Over Sailing
Cruise ships have been docked for much of 2020. U.S. health regulators want them to stay that way for much of the winter. But pushback from the industry and politicians in Washington has the no-sail order ending Oct. 31.
Carnival, with an unswerving focus on this end-of-October green light, has test cruises scheduled for November. The multi-million-dollar question is, will this date hold?
Oct. 31 could turn out to be an elusive goal because this no-sail order was issued in reaction to the raging Covid-19 pandemic. The United States has done a lousy job of controlling the highly contagious disease. Not only that, but the Trump administration’s “herd mentality” approach is not going to going to reassure fearful travelers. Keep in mind that many dedicated cruisegoers are in the groups most at-risk for the coronavirus.
The game being played over restrictions could have serious consequences for passengers and crew aboard the ships. Serious as in potentially deadly. This will be the case no matter how much disinfectant is sprayed and how many temperatures are taken aboard ships.
A Brutal Quarter for Carnival Stock
Q3 proved to be difficult for Carnival’s executives. That this was no surprise doesn’t make it easier for the company and its investors to digest.
Here’s a look at the numbers.
Miami-based Carnival reported a staggering 99.5% drop in revenue during the three months compared to the same period in 2019, when the company ‘s sales came in at about $6.5 billion. Note the “B.” This year’s revenue was $31 million. Note the “M.” In addition, Carnival’s monthly cash burn during the quarter was about $770 million.
The loss per share last quarter came to $2.19. This was nearly a mirror image of the performance in the same period a year earlier when the company’s EPS totaled $2.63.
With numbers like these, the push by executives at Carnival and its peers to get those ships back out to sea as soon as possible is understandable — from a financial standpoint, at least. Too bad for them that coping with the pandemic is not as simple as just dollars and cents.
Prospects Remain Uncertain
Meanwhile, investors interested in Carnival stock have little to guide them. The prospects for effective and accessible treatments for Covid-19, as well as for a vaccine to protect us, are tantalizing but not yet within reach. Experts suggest that, despite the overheated rhetoric from some politicians, distribution of a vaccine will take quite some time. Until then, social distancing and masks are the only reasonable options.
Carnival stock got a bit of a boost this month after JP Morgan took a long-term bullish view of the cruise industry. The Motley Fool reported that Carnival share jumped 5.3% on the news.
Carnival issued a statement recently that projected a generally positive tone:
“The company is encouraged that the Centers for Disease Control’s (“CDC”) No Sail Order was extended by only one month to October 31, 2020, the same date as the industry’s end of voluntary suspension of passenger operations. …There is constant dialogue ongoing in the United States for a potential cruise restart and the company is hopeful that the industry is in a position to collaborate with the CDC and administration to resume cruising from the United States this year.”
The Bottom Line
Carnival is positioning itself to resume its profitable cruises as soon as possible. The company’s subsidiaries in Italy and Germany have begun a phased resumption. Here in the U.S., however, it is unclear when cruise operators will be allowed to take passengers out to sea.
The overall situation appears to have changed very little. If you don’t mind the risk, and can let your investment idle for possibly several months or more, clicking “buy” is understandable.
I wrote in August that investors must decide how much of a price they are willing to pay to ride out the pandemic storm with Carnival stock. At that time, I said average investors should wait until the company’s outlook is clearer, and I see little to change my mind now.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.