The central theses
- Analysts estimate adjusted earnings per share to be – $ 1.71 compared to $ 0.22 in the first quarter of fiscal 2020.
- The occupancy rate is expected to drop drastically year on year.
- Revenues are expected to decline amid the ongoing health risks associated with COVID-19.
Carnival Corp. (CCL), the world’s largest cruise company, is operating with a reduced fleet due to the COVID-19 pandemic, although the global launch of vaccines gives hope for a recovery. While the Carnival could put some ships back into service by the end of the year, CEO Arnold Donald says it will likely take until 2023 for the ship to fully recover. In the short term, Carnival will cease cruise operations in key regions including the United States and Australia.
Investors will look for signs that the effects of the pandemic are wearing off when Carnival reports earnings for the first quarter of fiscal 2021 on April 7, 2021. The company’s fiscal year ended on November 30, 2020 and the first quarter of the fiscal year ended in February. The news may not be encouraging. Analysts expect the company to post a quarterly loss for the fourth year in a row and a fourth consecutive year of revenue decline.
Investors will also focus on Carnival occupancy, a measure of the passenger capacity or rooms used. The entire cruise industry has suffered from falling occupancy during the pandemic. However, you can recover when the health risks from the virus subside. The Centers for Disease Control and Prevention currently recommends those who have not been fully vaccinated to avoid travel, and all non-essential travel should be avoided. Analysts assume that the occupancy rate of Carnival will fall by more than half compared to the same quarter of the previous year, but has increased slightly compared to the last quarter of fiscal 2020.
Carnival’s stocks have dramatically outperformed the broader market over the past year. Part of that outperformance is due to the stock’s rebound from a much deeper dip than the rest of the market during the pandemic-triggered crash that occurred early last year. However, some of the outperformance, particularly since late October, has been fueled by investor optimism about the potential positive effects of COVID-19 vaccines. Vaccines are now given to millions of people in the US and around the world. Carnival shares returned 175.3% total return over the past 12 months, well above the S&P 500 total return of 53.1%.
The stock has risen for the past five months despite Carnival’s financial results deteriorating. The company reported adjusted loss per share of $ 2.02 for the fourth quarter of fiscal 2020. This was the third quarter in a row with adjusted losses, but it was less than analysts expected. Quarterly sales fell by 99.3%, making it the third quarter in a row with declines. In its preliminary earnings report for the fourth quarter of fiscal 2020, released in the first half of January, Carnival noted that the pandemic has had and is expected to have a significant impact on its financial position and operations.
For the third quarter of fiscal 2020, Carnival posted adjusted loss per share of $ 2.19. It wasn’t as steep as the adjusted second quarter loss of $ 3.30 per share, however. Sales in the third quarter fell by 99.5% compared to the same period in the previous year. The company announced it would expedite the removal of 18 of its less efficient ships from its fleet in the wake of the pandemic. It was also noted that after the guest cruise operations were suspended in mid-March, limited guest cruise operations resumed Beginning of September.
Analysts expect Carnival to post another adjusted loss in the first quarter of fiscal 2021, representing the fourth straight quarter of adjusted losses. Revenue is expected to decline 98.4% year over year, the fourth consecutive quarter of declining revenue. It’s also noteworthy that the first quarter would be the third straight quarter in which the company had virtually no sales, reflecting the near-term business collapse for Carnival and the broader cruise industry. For the 2021 fiscal year, analysts are currently forecasting an adjusted loss per share of USD 5.60. This would be the second consecutive adjusted annual loss. Annual sales are expected to decrease 33.9% in fiscal 2020 after a 73.1% annual decline.
|Carnival key metrics|
|Estimate for the first quarter of 2021 (GJ)||Q1 2020 (GJ)||Q1 2019 (GJ)|
|Adjusted earnings per share ($)||-1.71||0.22||0.49|
|Revenue ($ B)||0.08||4.8||4.7|
|Occupancy rate (%)||43.0||104.3||104.8|
Source: Visible alpha
As mentioned above, investors will also be watching Carnival occupancy. The occupancy rate provides a measure of how well a cruise line is using all of its passenger capacity. It is calculated by dividing the number of passengers in the relevant period by the total passenger capacity in the same period. The passenger capacity is based on the assumption that each cabin can accommodate two passengers. This means that a load of more than 100% is an indication that some cabins are occupied by more than two passengers.
The occupancy rate of the carnival has dropped dramatically in the face of the pandemic. Before falling to 96.1% in the second quarter of fiscal 2020, the company’s occupancy rate had not fallen below 103.6% since at least the second quarter of fiscal 2017. It fell to 40.0% in the fourth quarter of fiscal 2020, 64 percentage points below the company’s level in the same quarter a year earlier. Analysts assume that Carnival will report an occupancy rate of 43.0% in the first quarter of fiscal year 2021. That would be a slight improvement over the final quarter of fiscal 2020, but still drastically over the prior-year quarter. While that number can improve as the vaccine rollout gains traction, it’s unclear how quickly the Carnival occupancy rate will return to normal.