Should You Buy Carnival?

 

Carnival Corporation & plc provides first quarter 2021 business update.

   -- U.S. GAAP net loss of $(2.0) billion and adjusted net loss of $(2.0) 
      billion for the first quarter of 2021. 
 
   -- First quarter 2021 ended with $11.5 billion of cash and short-term 
      investments. 
 
   -- Cash burn rate in the first quarter of 2021 was better than expected as 
      the company has identified and implemented opportunities to optimize its 
      monthly spend. 
 
   -- Booking volumes for all future cruises during the first quarter of 2021 
      were approximately 90% higher than booking volumes during the fourth 
      quarter of 2020. 
 
   -- Cumulative advanced bookings for full year 2022 are ahead of a very 
      strong 2019, despite minimal advertising or marketing. 
 
   -- Six of the company's nine brands are expected to resume limited guest 
      cruise operations by this summer. 
 
   -- AIDA resumed guest cruise operations in March sailing in the Canary 
      Islands. 
 
   -- Costa expects to resume guest cruise operations in May sailing to Italian 
      ports. 
 
   -- P&O Cruises (UK), Cunard and Princess Cruises will each offer a series of 
      UK cruises this summer. 
 
   -- Seabourn expects to resume guest cruise operations this summer sailing 
      from Greece.

Carnival Corporation & plc President and Chief Executive Officer Arnold Donald noted, “We are focused on resuming operations as quickly as practical, while at the same time demonstrating prudent stewardship of capital and doing so in a way that serves the best interests of public health. Our highest responsibility and therefore our top priority is always compliance, environmental protection and the health, safety and well-being of everyone.” Donald added, “Our portfolio of brands have clearly been an asset as we resume operations this summer with nine ships across six of our brands.”

Donald continued, “Throughout the pause we have been positioning Carnival Corporation to return to serving guests an operationally stronger company than we were before. With an exciting roster of six new, more efficient ships by December and with lower capacity from the exit of 19 less efficient ships, we expect to capitalize on pent-up demand and achieve significant cost improvement from the greater efficiency of our fleet, along with ongoing streamlining of shoreside operations.”

Update on Bookings

Donald added, “Booking volumes are accelerating. During the first quarter of 2021 they were approximately 90% higher than volumes during the fourth quarter of 2020 reflecting both the significant pent up demand and long-term potential for cruising.”

Cumulative advanced bookings for full year 2022 are ahead of a very strong 2019 as of March 21, 2021. The company highlights this level of bookings was achieved with minimal advertising and marketing. (Due to the pause in guest cruise operations in 2020, the company’s current booking trends will be compared to bookings trends for 2019 sailings.)

Total customer deposits as of February 28, 2021 and November 30, 2020 were $2.2 billion, the majority of which are future cruise credits. During the quarter, customer deposits on new bookings essentially offset the impact of refunds provided. As of February 28, 2021, the current portion of customer deposits was $1.8 billion, of which $0.7 billion relates to bookings for the remainder of 2021.

Resumption of Guest Operations

The company is uniquely positioned for a phased resumption in cruise travel given its multiple brands which can each be restarted independently and tailored to the environment of their respective source market. AIDA Cruises (“AIDA”) resumed guest cruise operations in late March sailing in the Canary Islands. Costa Cruises (“Costa”) expects to resume operations in May sailing to Italian ports. P&O Cruises (UK), Cunard and Princess Cruises will each offer a series of cruises this summer sailing around UK coastal waters with P&O Cruises (UK) kicking off the season in June followed by Cunard and Princess Cruises in July. Seabourn also expects to resume guest cruise operations this summer sailing from Greece. In addition, this summer Holland America Line and Princess Cruises expect to offer land-based vacation options for travelers to experience Alaska through a combination of tours, lodging and sightseeing.

Health and Safety Protocols

Initial cruises are taking place with adjusted passenger capacity and enhanced health protocols developed with government and health authorities, and guidance from the company’s roster of medical and scientific experts. The company has been working with a number of world-leading public health, epidemiological and policy experts to support its ongoing efforts with enhanced health and safety protocols to help protect against and mitigate the impact of COVID-19 during cruise vacations. The company’s brands have a comprehensive set of health and hygiene protocols that facilitate a safe and healthy return to cruise vacations. These enhanced protocols are modeled after shoreside health and mitigation guidelines as provided by each brand’s respective country, and approved by all relevant regulatory authorities. Protocols will be updated based on evolving scientific and medical knowledge related to mitigation strategies. In addition to the jurisdictions associated with the restart plans noted above, the company continues to work closely with governments and health authorities in other parts of the world to ensure that its health and safety protocols will also comply with the requirements of each location.

Increasing Liquidity

Carnival Corporation & plc Chief Financial Officer David Bernstein noted, “We ended the first quarter with $11.5 billion in cash and short-term investments. At this time, we believe we have enough liquidity to get us back to full operations and we will be pursuing refinancing opportunities to reduce interest expense and extend maturities. We have successfully identified and implemented actions to optimize our monthly cash burn rate and we will continue to do so.”

The company’s monthly average cash burn rate for the first quarter of 2021 was $500 million, which was better than expected primarily due to the timing of capital expenditures. The company expects the monthly average cash burn rate for the first half of 2021 to be approximately $550 million, which is better than previously expected. This is a result of the company’s efforts to optimize its monthly spend despite higher restart related spend. This monthly average cash burn rate includes ongoing ship operating and administrative expenses, estimated restart spend, working capital changes (excluding changes in customer deposits), interest expense and capital expenditures (net of export credit facilities), and excludes scheduled debt maturities as well as other cash collateral to be provided. As the company continues to resume guest cruise operations, it expects to incur incremental spend relating to bringing ships out of pause status, returning crew members to its ships and implementing enhanced health and safety protocols.

Due to the pause in guest operations, the company has taken significant actions to preserve cash and secure additional financing to increase its liquidity. Since March 2020, the company has raised $23.6 billion through a series of transactions, including the following transactions since the beginning of the first quarter 2021:

   -- Borrowed $1.5 billion under export credit facilities in December 2020 
 
   -- Issued $3.5 billion of senior unsecured notes in February 2021 
 
   -- Completed a $1.0 billion public equity offering of its common stock in 
      February 2021

During the remainder of fiscal 2021, the company expects to refinance debt at lower interest rates and extend maturities.

As of February 28, 2021, the company’s outstanding debt maturities are as follows:

 
(in billions)    2Q 2021    3Q 2021     4Q 2021     1Q 2022 
Principal 
 payments on 
 outstanding 
 debt (a)        $     0.4  $      0.5  $      0.3  $      0.6 
 
 
 
(a)  Excluding the revolving facility. As of February 28, 2021, borrowings 
     under the revolving facility were $3.1 billion. The maturities for these 
     borrowings are currently extended through September 2021. The company may 
     re-borrow such amounts subject to satisfaction of the conditions in the 
     revolving facility agreement. 

The pause in guest operations continues to have a material negative impact on all aspects of the company’s business, including the company’s liquidity, financial position and results of operations. The company expects a net loss on both a U.S. GAAP and adjusted basis for the second quarter 2021 and full year ending November 30, 2021.


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