|
Related Topics
|
Category: Stock Market and Royal Caribbean Cruises
Date: 20 May 2020 Stock Price: $40.30 We take a look at the 1st quarter earnings report of their 2020 fiscal year of Royal Caribbean Cruises a global cruise vacation company that operates a total of 61 ships and has an itinerary across all 7 continents. The company and its stock price has been very hard hit by the Coronavirus pandemic.
The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread of the disease. As part of the global containment effort, the Company previously announced a voluntary suspension of its global cruise operation." |
About Royal Caribbean Cruises
Royal Caribbean Cruises Ltd. (NYSE: RCL) is a global cruise vacation company that controls and operates four global brands: Royal Caribbean International, Celebrity Cruises, Azamara and Silversea Cruises. We are also a 50% joint venture owner of the German brand TUI Cruises and a 49% shareholder in the Spanish brand Pullmantur Cruceros. Together these brands operate a combined total of 61 ships with an additional 17 on order as of December 31, 2019. They operate diverse itineraries around the world that call on all seven continents.
Overview of Royal Caribbean Cruises' 1st quarter 2020 earnings report
The data below refers to the latest quarter's data unless specified otherwise:
- Revenue: $2.032 billion (down from $2.439 billion for the same quarter of the previous year)
- Revenues decreased by -16.7% over the last 12 months
- Total cruise operating expenses: $1.510 billion (up from $1.413 billion for the same quarter of the previous year)
- Total cruise operating expenses increased by 6.9% over the last 12 months
- Significant margin squeeze being experienced by Royal Caribbean Cruises with its costs and expenses growing while revenues declined
- Net loss: -$1.44 billion (down from $249 million for the same quarter of the previous year)
- Diluted loss per share: $6.91 (down from $1.19 profit for the same quarter of the previous year)
- Diluted number of shares outstanding: 209.097 million (down from 209.874 million for the same quarter of the previous year)
- Cash and cash equivalents: $3.890 billion
- Cash and cash equivalents per share: $18.60
- Cash and cash equivalents makes up 46.2% of the group's market capital
- Cash and cash equivalents makes up 11.6% of the group's total assets
- Accounts receivable: $220.876 million
- Accounts receivable makes up 0.6% of total assets
- Property and equipment: $25.857 billion
- Property and equipment makes up 77.3% of Royal Caribbean Cruises
- Stockholders equity in Royal Caribbean Cruises: $10.231 billion
- Stockholders equity per share: $48.92
- So Royal Caribbean Cruises is trading at 0.82 times its stockholders equity per share which is outside the expected range of between 2 and 4 times that most firms tend to trade at
- For some perspective the average price to book value that firms in the S&P 500 trade at is 3.7 times. Read more about the S&P 500 here
- Cash generated from operations for the fiscal year: $198.710 million
- Cash generated from operations per share: $0.95
Royal Caribbean Cruises' management commentary on their 1st quarter 20202 earnings
MIAMI, May 20, 2020 /PRNewswire/ -- Royal Caribbean Cruises Ltd. (NYSE: RCL) today commented on the business in light of the impact of the COVID-19 pandemic and reported on the first quarter of 2020.
The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread of the disease. As part of the global containment effort, the Company previously announced a voluntary suspension of its global cruise operation.
"Responding to the dramatic change in business conditions caused by COVID-19 has required focus, dedication, ingenuity and improvisation from all our people, and their efforts have been nonstop," said Richard D. Fain, Chairman and CEO. "We understand that when our ships return to service, they will be sailing in a changed world. How well we anticipate and solve for this new environment will play a critical role in keeping our guests and crew safe and healthy, as well as position our business and that of our travel agent partners to return to growth."
As the Company finishes repatriating crew members to their home countries, the Company's future focus now turns to four key principles:
The outbreak of COVID-19 has resulted in an unprecedented global response to contain the spread of the disease. As part of the global containment effort, the Company previously announced a voluntary suspension of its global cruise operation.
"Responding to the dramatic change in business conditions caused by COVID-19 has required focus, dedication, ingenuity and improvisation from all our people, and their efforts have been nonstop," said Richard D. Fain, Chairman and CEO. "We understand that when our ships return to service, they will be sailing in a changed world. How well we anticipate and solve for this new environment will play a critical role in keeping our guests and crew safe and healthy, as well as position our business and that of our travel agent partners to return to growth."
As the Company finishes repatriating crew members to their home countries, the Company's future focus now turns to four key principles:
- Ensuring the safety of guests and crew
- Proactively enhancing liquidity
- Protecting the Company's brands, and
- Defining and preparing for a "new normal."
Update on Bookings
Prior to the outbreak of COVID-19, the Company started the year in a strong booked position and at higher prices on a prior year comparable basis. Given the impact of COVID-19, booking volumes for the remainder of 2020 are meaningfully lower than the same time last year at prices that are down low-single digits. Although still early in the booking cycle, the booked position for 2021 is within historical ranges when compared to same time last year with 2021 prices up mid-single digits compared to 2020.
The Company has implemented various programs in order to best serve its booked guests providing the choice of future cruise credits in lieu of providing cash refunds for both cancelled sailings and future bookings. As of April 30, 2020, approximately 45% of the guests booked on cancelled sailings have requested cash refunds. Additionally, as of March 31, 2020, the Company had $2.4 billion in customer deposits. The Company also continues to take future bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings.
Update on Liquidity Actions and Ongoing Uses of Cash
Since the last earnings call, and given the challenges posed by the suspension of its global cruise operation, the Company has taken significant actions to enhance its liquidity, preserve cash and secure additional financing. These actions include reducing operating expenses; reducing or deferring capital spend; and increasing its available cash position through various financing sources. Among these efforts, the Company highlighted an approximate $4.0 billion increase in additional financing through a secured bond issuance and increased revolver capacity; a $3.0 billion reduction in its 2020 capital expenditures, a $0.8 billion 12-month debt amortization holiday from certain export-credit backed facilities, and a substantial reduction in its operating expenses due to the fleet layup and significant actions to meaningfully decrease the Company's sales, marketing and administrative expenses.
"We have taken swift and substantial actions to bolster our financial position by significantly reducing our operating and capital spend and leveraging our strong balance sheet to raise additional capital," said Jason T. Liberty, executive vice president and CFO.
The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $275 million per month during a prolonged suspension of operations. This range includes ongoing ship operating expenses, administrative expenses, debt service expense, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings. The Company is considering ways to further reduce the average monthly requirement under a further prolonged out-of-service scenario and during start-up of operations.
Liquidity and Financing Arrangements
As of April 30, 2020, the Company had liquidity of approximately $2.3 billion all in the form of cash and cash equivalents. On May 19, 2020, the Company completed its $3.3 billion senior secured notes offering, improving the Company's liquidity position by approximately $1.0 billion.
The Company noted that as of May 19, 2020, the expected debt maturities for the remainder of 2020 and 2021, are $0.4 billion and $0.9 billion, respectively.
Capital Expenditures
Since the last earnings call, the Company has identified approximately $3.0 billion and $1.4 billion of capital expenditure reductions or deferrals in 2020 and 2021, respectively. The projected capital expenditures for the remainder of 2020 and 2021 are $0.5 billion and $2.1 billion, respectively. The Company continues to evaluate ways to further reduce these expenditures.
The Company believes COVID-19 has impacted shipyard operations and will result in delivery delays of ships previously planned for delivery in 2020 and 2021.
First Quarter 2020
Due to the COVID-19 pandemic, the Company suspended its global cruise operation starting on March 13, 2020, which resulted in the cancellation of 130 sailings during the first quarter and a consequent reduction in capacity of approximately 20.0% vs. guidance and 17.0% vs. the same time last year
The Company reported US GAAP Net Loss for the first quarter of 2020 of $(1.4) billion or $(6.91) per share compared to US GAAP Net Income of $249.7 million or $1.19 per share in the prior year. The 2020 results include a non-cash asset impairment loss of $1.1 billion. The Company reported Adjusted Net Loss of $(310.4) million or $(1.48) per share compared to Adjusted Net Income of $275.8 million or $1.31 per share in the prior year. The Net Loss for the quarter is a result of the COVID-19 pandemic on the business.
2020 Outlook
On March 10, 2020, the Company withdrew its first quarter and full-year 2020 guidance. The magnitude, duration and speed of COVID-19 remains uncertain. As a consequence, the Company cannot estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results with reasonable certainty. The Company expects to incur a net loss on both a US GAAP and adjusted basis for its second quarter and the 2020 fiscal year; the extent of which will depend on the timing and extent of our return to service. Interest expense for the remainder of the year (April 1, 2020 through December 31,2020) will be in the range of $590 million to $610 million.
As of March 31, 2020, the Company had hedged approximately 60%, 39%, 23% and 5% of its total projected metric tons of fuel consumption for the remainder of 2020, 2021, 2022 and 2023, respectively. For the same four-year period, the annual average cost per metric ton of the hedge portfolio is approximately $433, $435, $514 and $580, respectively.
Prior to the outbreak of COVID-19, the Company started the year in a strong booked position and at higher prices on a prior year comparable basis. Given the impact of COVID-19, booking volumes for the remainder of 2020 are meaningfully lower than the same time last year at prices that are down low-single digits. Although still early in the booking cycle, the booked position for 2021 is within historical ranges when compared to same time last year with 2021 prices up mid-single digits compared to 2020.
The Company has implemented various programs in order to best serve its booked guests providing the choice of future cruise credits in lieu of providing cash refunds for both cancelled sailings and future bookings. As of April 30, 2020, approximately 45% of the guests booked on cancelled sailings have requested cash refunds. Additionally, as of March 31, 2020, the Company had $2.4 billion in customer deposits. The Company also continues to take future bookings for 2020, 2021 and 2022, and receive new customer deposits and final payments on these bookings.
Update on Liquidity Actions and Ongoing Uses of Cash
Since the last earnings call, and given the challenges posed by the suspension of its global cruise operation, the Company has taken significant actions to enhance its liquidity, preserve cash and secure additional financing. These actions include reducing operating expenses; reducing or deferring capital spend; and increasing its available cash position through various financing sources. Among these efforts, the Company highlighted an approximate $4.0 billion increase in additional financing through a secured bond issuance and increased revolver capacity; a $3.0 billion reduction in its 2020 capital expenditures, a $0.8 billion 12-month debt amortization holiday from certain export-credit backed facilities, and a substantial reduction in its operating expenses due to the fleet layup and significant actions to meaningfully decrease the Company's sales, marketing and administrative expenses.
"We have taken swift and substantial actions to bolster our financial position by significantly reducing our operating and capital spend and leveraging our strong balance sheet to raise additional capital," said Jason T. Liberty, executive vice president and CFO.
The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $275 million per month during a prolonged suspension of operations. This range includes ongoing ship operating expenses, administrative expenses, debt service expense, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings. The Company is considering ways to further reduce the average monthly requirement under a further prolonged out-of-service scenario and during start-up of operations.
Liquidity and Financing Arrangements
As of April 30, 2020, the Company had liquidity of approximately $2.3 billion all in the form of cash and cash equivalents. On May 19, 2020, the Company completed its $3.3 billion senior secured notes offering, improving the Company's liquidity position by approximately $1.0 billion.
The Company noted that as of May 19, 2020, the expected debt maturities for the remainder of 2020 and 2021, are $0.4 billion and $0.9 billion, respectively.
Capital Expenditures
Since the last earnings call, the Company has identified approximately $3.0 billion and $1.4 billion of capital expenditure reductions or deferrals in 2020 and 2021, respectively. The projected capital expenditures for the remainder of 2020 and 2021 are $0.5 billion and $2.1 billion, respectively. The Company continues to evaluate ways to further reduce these expenditures.
The Company believes COVID-19 has impacted shipyard operations and will result in delivery delays of ships previously planned for delivery in 2020 and 2021.
First Quarter 2020
Due to the COVID-19 pandemic, the Company suspended its global cruise operation starting on March 13, 2020, which resulted in the cancellation of 130 sailings during the first quarter and a consequent reduction in capacity of approximately 20.0% vs. guidance and 17.0% vs. the same time last year
The Company reported US GAAP Net Loss for the first quarter of 2020 of $(1.4) billion or $(6.91) per share compared to US GAAP Net Income of $249.7 million or $1.19 per share in the prior year. The 2020 results include a non-cash asset impairment loss of $1.1 billion. The Company reported Adjusted Net Loss of $(310.4) million or $(1.48) per share compared to Adjusted Net Income of $275.8 million or $1.31 per share in the prior year. The Net Loss for the quarter is a result of the COVID-19 pandemic on the business.
2020 Outlook
On March 10, 2020, the Company withdrew its first quarter and full-year 2020 guidance. The magnitude, duration and speed of COVID-19 remains uncertain. As a consequence, the Company cannot estimate the impact of COVID-19 on its business, financial condition or near or longer-term financial or operational results with reasonable certainty. The Company expects to incur a net loss on both a US GAAP and adjusted basis for its second quarter and the 2020 fiscal year; the extent of which will depend on the timing and extent of our return to service. Interest expense for the remainder of the year (April 1, 2020 through December 31,2020) will be in the range of $590 million to $610 million.
As of March 31, 2020, the Company had hedged approximately 60%, 39%, 23% and 5% of its total projected metric tons of fuel consumption for the remainder of 2020, 2021, 2022 and 2023, respectively. For the same four-year period, the annual average cost per metric ton of the hedge portfolio is approximately $433, $435, $514 and $580, respectively.
Royal Caribbean Cruises (NYSE: RCL) stock price history
The image below, obtained from Google shows the stock price history of Royal Caribbean Cruises over the last 5 years. And it's been a horrible time for Royal Caribbean Cruises stockholders (especially 2020) with the stock price 5 years ago trading around $76.20 and its currently trading at $40.30. That is a loss of -47.1% suffered by Royal Caribbean Cruises stockholders over the past 5 years.
The stock of Royal Caribbean Cruises is trading at a lot closer to its 52 week low of $19.25 than it is to its 52 week high of $135.32, which to us is a clear indication that the short term sentiment and momentum of Royal Caribbean Cruises stock is very negative right now. And this is no real surprise considering the impact of Covid-19 on international travel and the tourism industry at large and its impact on RCL's current and future earnings.
The stock of Royal Caribbean Cruises is trading at a lot closer to its 52 week low of $19.25 than it is to its 52 week high of $135.32, which to us is a clear indication that the short term sentiment and momentum of Royal Caribbean Cruises stock is very negative right now. And this is no real surprise considering the impact of Covid-19 on international travel and the tourism industry at large and its impact on RCL's current and future earnings.
Recent Google searches for RCL stock price
The graphic below shows the google search trends for RCL stock price in the United States over the last 12 months as obtained from Google Trends. As the graphic shows there was a significant surge in searches for RCL stock price in early to mid March, which coincided with the collapse in RCL's stock price due to the impact of the coronavirus on global economies, and world wide travel bans, which affected the bookings and income of Royal Caribbean cruises very negatively and the stock price reacted accordingly.
Comparing the stock of Royal Caribbean Cruises (NYSE: RCL) to that of Carnival (NYSE:CCL)
The image below shows the stock performance of Royal Caribbean Cruises (RCL) and Carnival (CCL) over the last 3 years. And as can be seen from the image the stock price movements of RCL and CCL are very similar, but over the three year period Carnival's stock price declined more than that of Royal Caribbean Cruises. Over the three year period RCL stock declined by -63.97% while the stock of CCL declined by a eye watering -79.45%. But we would not which the returns of either of these stocks on investors. But in crises there are opportunities. The question is whether the coronavirus pandemic has created the perfect long term opportunity to buy cruise ship stocks?
Recent coverage of Royal Caribbean Cruises
The extract below covers the latest earnings report of Royal Caribbean Cruises as obtained from TheStreet.com
Royal Caribbean (RCL) - Get Report shares could be under pressure Tuesday after the company announced it will cancel eight cruises out of China through March 4 while also modifying “certain itineraries in the region.” The company said that it will take a charge of 25 cents a share from the cancellations. That number would be steeper than the “$3 to $4 million of revenue, and about $0.02 of earnings,” that Wedbush managing director James Hardiman estimated each lost voyage would cost the company. Hardiman made his comments in an interview with Yahoo.
Royal Caribbean also issued guidelines to “help protect guests and crew” that include denying boarding to any individual who has traveled from, to or through mainland China or Hong Kong in the past 15 days regardless of nationality, and mandatory health screenings for certain high-risk guests. While the company said it will record the charge it also added “there are still too many variables and uncertainties regarding this outbreak to calculate the impact on the business.”
Read the full article here
Royal Caribbean (RCL) - Get Report shares could be under pressure Tuesday after the company announced it will cancel eight cruises out of China through March 4 while also modifying “certain itineraries in the region.” The company said that it will take a charge of 25 cents a share from the cancellations. That number would be steeper than the “$3 to $4 million of revenue, and about $0.02 of earnings,” that Wedbush managing director James Hardiman estimated each lost voyage would cost the company. Hardiman made his comments in an interview with Yahoo.
Royal Caribbean also issued guidelines to “help protect guests and crew” that include denying boarding to any individual who has traveled from, to or through mainland China or Hong Kong in the past 15 days regardless of nationality, and mandatory health screenings for certain high-risk guests. While the company said it will record the charge it also added “there are still too many variables and uncertainties regarding this outbreak to calculate the impact on the business.”
Read the full article here
Royal Caribbean Cruises (NYSE: RCL) latest stock valuation
So what do we value Royal Caribbean Cruises at based on their 1st quarter 2020 earnings report and the fact that made a significant loss during 1Q 2020? Based on their earnings report and the fact that they are loss making we have decided to value RCL at their stockholders equity per share which is $48.92 a stock. We therefore believe the stock of Royal Caribbean Cruises is slightly undervalued
We usually recommend that long term fundamental or value investors look to enter a stock at at least 10% below our target price, which in this case is $48.92, so we would suggest looking to enter into the stock of Royal Caribbean Cruises at $42.10 or below.
We expect the stock of Royal Caribbean to kick up from its current price in coming weeks and months as the Covid-19 pandemic starts to ease and countries starts opening up gradually.
We usually recommend that long term fundamental or value investors look to enter a stock at at least 10% below our target price, which in this case is $48.92, so we would suggest looking to enter into the stock of Royal Caribbean Cruises at $42.10 or below.
We expect the stock of Royal Caribbean to kick up from its current price in coming weeks and months as the Covid-19 pandemic starts to ease and countries starts opening up gradually.
Next earnings release of Royal Caribbean Cruises
It is expected that Royal Caribbean Cruises 2nd quarter 2020 fiscal year earnings report will be released in early August 2020