Carnival PLC (LON:CCL) shares sank on Thursday as the embattled cruise operator revealed that its had tumbled to a US$4.4bn loss in its second quarter as the coronavirus pandemic forced it to press pause on its operations.
For the three months ended May 31, the firm reported a net loss of US$4.4bn, which included a US$2bn impairment charge, while revenues plunged to just US$0.7bn compared to US$4.8bn in the prior year.
READ: Coronavirus effects knock easyJet and Carnival out of FTSE 100 in reshuffle
The firm said most of its cruise operations were paused during the quarter, adding that it was “unable to definitively predict when it will return to normal operations”, adding that it also expected to report a net loss for the second half of the year.
Carnival also said it ended the period with US$7.6bn in liquidity and that it expected to enhance this through refinancing debt maturities.
Meanwhile, the group reported that its current portion of customer deposits was US$2.6bn, with US$121mln relating to third quarter sailing and US$353mln relating to fourth quarter sailings. The company said it expected a decline in its customer deposits balance in the second half of 2020, all of which is expected in the third quarter, however, this was predicted to be “significantly less” than the decline in the second quarter.
Looking ahead, Carnival said advanced bookings for 2021 were within historical ranges, albeit at prices that were “down in the low to mid-single digits range”.
The group added that booking volumes for 2021 were “running meaningfully behind the prior year”, however, it said volumes were improving compared to the prior six weeks.
Meanwhile, Carnival said it intends to accelerate the removal of ships in 2020 which it had previously expected to sell over the coming years, with six ships expected to leave the fleet in the next 90 days.
“Coming so soon after the company posted record profits at the end of last year, the change in outlook could not be starker”, said Michael Hewson at CMC Markets.
“The company also has a lot of questions to answer in how to restore customer trust after the company was criticised for its handling of the initial coronavirus outbreaks on board its cruise ships, earlier this year. While 2021 bookings are looking good, these have been at heavily discounted prices, with the company’s biggest problem being at the moment being cash flow, or rather the lack of it”, he added.
Hewson also expected that the company will present further job cuts in the coming months as it moved to downsize its fleet and reduce cash burn, with 450 jobs already marked for the axe at its headquarters in Southampton.
“All in all these are awful numbers for Carnival, as well as the cruise line sector in general, and with concerns about a second wave likely to increase as we head towards the end of the year, the outlook for the sector looks highly uncertain, even on a best case scenario where lockdowns and restrictions are lifted”, he said.
Firm ‘heading for the doldrums’, says broker
In a note on Thursday, analysts at Berenberg downgraded Carnival to ‘sell’ from ‘hold’ and cut their target price to 800p from 1,355p, saying they considered the company’s capital structure to be “unsustainable and in need of a fresh injection of equity”.
“While Carnival has announced that a limited number of ships will sail in August, the recent extension of the suspension by its competitor [Norwegian Cruise Line] until the end of September raises the risk that the return of the industry is going to be slower than we expect. We expect that Carnival will not have a full fleet sailing until into 2022”, the broker said.
Berenberg also predicted that due to the company’s leverage, they did not expect the firm to have “sufficient cash flow to make any shareholder distributions until at least 2025”.
“This will be important given that the US$16bn returned over the last decade was an integral part of the equity story”, the bank concluded.
Shares in Carnival dropped 9% to 1,160p in lunchtime trading.