Why is the share price of Carnival falling?

  • September 19, 2020 04:20 PM BST
  • Team Kalkine
Why is the share price of Carnival falling?

Summary

  • The share price of Carnival plc was trading 6.71 lower on 18 September from its previous day’s close.
  • The British-American company announced cancellation of cruise journey for one of its prominent brands, P&O Cruises.
  • In its financial summary for Q3 ending 31 August 2020, Carnival plc reported a net loss of $2.9 billion.
  • As part of its plans to remove less efficient ships from its fleet, the company has sold four of its ships in past couple of months.
  • Carnival plc has restarted a limited guest operation with increased health protocols in place.

The share prices of Carnival plc (LON: CCL) on 18 September 2020 was trading 6.71 lower from its previous day’s close at 11.04 AM. The stock provided around minus 71 per cent negative return on price, on a year to date (YTD) basis. The fall in the share price of this FTSE 250 listed British-American company seemed to be a fallout of the announcement that the company made on the previous day on 17 September regarding cancellation of cruise journey for one of its prominent brands, P&O Cruises until the beginning of 2021.

This development followed a fall in the share prices of Carnival on the same day. Almost a day before its decision to cancel the cruise journeys, the cruise line operator had said that it expected a whopping loss of around $3 billion in the third quarter of the year 2020. The coronavirus-led crisis has hit the travel and leisure sector the most and the government’s ongoing changes in travel restrictions are impacting the travel itineraries of cruise companies.

We present some recent developments at the company, its financial updates, and stock market performance.

Recent announcements from the company

After selling two ships in July 2020, the cruise company informed about selling two more ships on 16 September 2020. These sales were aligned with its strategy to eliminate less efficient ships from its fleet. Earlier, Carnival Corporation & plc had announced filing a prospectus supplement with the United States (US) Securities and Exchange Commission (SEC) to offer and sell shares of its common stock, through its sales agents with an offering price of up to $1 billion through at-the-market (ATM) equity offering programme. The company is likely to utilise the net proceeds from sales of shares through this programme for general corporate purposes. From mid-October 2020, AIDA Cruises, a major cruise line in Germany, a brand owned by Carnival Corporation, would expand its range of cruises in autumn with new voyages to Italy.

Also read: Travel woes during the pandemic: UK to lose £22 billion as international travel dips

Financial performance

On 15 September 2020, Carnival Corporation & plc released summary of its preliminary financial information for the third quarter ending 31 August 2020. The company presented US GAAP net loss of $2.9 billion for the third quarter (Q3) of 2020, including $0.9 billion of non-cash impairment charges. The Q3 ended with $8.2 billion of cash and cash equivalents. The company said that it would take necessary steps on becoming a leaner and more efficient company. It was working on exiting 18 ships from its fleet that to reduce 12 per cent capacity.

The company restarted limited guest operations with visits to Italy and said that it would continue with its plans over September and October 2020. The cruises would operate with necessary passenger capacity and increased health protocols, developed with guidelines from the government and health authorities. Due to the pandemic, the company had paused its guest cruise operations in mid-March 2020.

As per the company’s financial results for the second quarter ending May 31, 2020, Carnival’s total revenues were $0.7 billion, lower than $4.8 billion in Q2 2019. While the Q2 2020 adjusted net loss was at $ 2.4 billion, the US GAAP net loss was reported at $ 4.4 billion for the mentioned quarter. In Q2 2020, for majority of duration, the guest cruise operations were shut, so it did not forecast its earnings. Carnival said that if the guest operations were to remain shut for a longer duration, its liquidity and financial position would be impacted further.

The Q2 2020 ended with $7.6 billion of available liquidity and the company planned to increase future liquidity by refinancing scheduled debt maturities. Carnival informed that it possessed $8.8 billion of committed export credit facilities to fund the delivery of ships that were already planned through 2023.

On capacity optimisation plans, Carnival informed about preliminary deals for disposing six ships that might leave the fleet in coming three months, besides working on additional agreements. The company also suspended dividend payouts and repurchase of Carnival Corporation common stock and Carnival plc ordinary shares.

Stock performance of Carnival plc

On 18 September 2020, at 11.04 AM, the company’s stock (LON: CCL) was trading at £960,00 down 6.71 per cent from its previous day’s close of £1,029.00. The 52 week low high range was recorded as 605.00 and 3,712.00. With a market capitalisation (Mcap) of £ 1,879.70million, the stock provided a negative return on price, which was minus 71.79 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 905,300.

Details of the announcement on cancellations of cruise journeys by Carnival’s P&O

P&O informed that all its Caribbean cruises would remain cancelled till the end of January 2021, cruises from and to Southampton would not operate till February 2021. Paul Ludlow, president at P&O Cruises said that the company had to cancel the journeys due to recent developments on travel from Britain. Ludlow added that the company has been working with experts from the field of science and government authorities on implementing the required health and safety measures when its cruises would restart operating.

P&O emphasised that it cannot wait for the restrictions to relax and the borders to open in order to re-start sailing. The cruise line said that it would notify all its guests who made their bookings on its cruise that were cancelled. These guests could fill an online form to get an enhanced 125 per cent Future Cruise Credit or a 100 per cent refund.

P&O Cruises, considered as one of the Britain’s favourite cruise lines, visits more than 200 destinations throughout the globe. Its itineraries range from two to 17 days, besides an annual world cruise. The major destinations include Central & South America, Western Europe, Asia, Australia, New Zealand, Canada, Dubai, and the Caribbean, among others.

Also read: A Lens over Carnival and TUI Stocks Amidst the Jitters in Holiday Companies

Conclusion

Given the ongoing crisis brought by the coronavirus pandemic, the cruise companies are bound to prioritise the health and safety of both its customers and staff. As the travel and leisure sector has been one of the worst hit due to the cononavirus pandemic, the companies need to focus on increasing the customer confidence so that they can resume their voyages. Besides working with health experts and the government, the companies can adopt latest technologies to keep the guests and staff safe.

 

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