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Category: Stock Market and Royal Caribbean Group
Date: 11 August 2020 Stock Price of Royal Caribbean Group: $57.13 We take a look at the 2nd quarter earnings report of their 2020 fiscal year of Royal Caribbean Cruises a global cruise vacation company that operates a total of 62 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 group's revenue declined by -94% compared to the same quarter of the previous year and they reported a loss of -$1.6 billion for the quarter.
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The COVID-19 pandemic is posing an unprecedented challenge to our industry and society. Our teams are working tirelessly to return to service soonest and doing so by developing new health and safety protocols to protect the well-being of our guests, crew and destinations we visit -Richard D. Fain, Chairman and CEO"
About Royal Caribbean Group
Royal Caribbean Group (NYSE: RCL) is the operating business name for Royal Caribbean Cruises Ltd. Royal Caribbean Group is the owner of four global cruise vacation brands: Royal Caribbean International, Celebrity Cruises, Silversea and Azamara. Royal Caribbean Group is also a 50% owner of a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises. Together, our brands operate 62 ships with an additional 16 on order as of July 31, 2020
Overview of Royal Caribbean Group's 2nd quarter 2020 earnings report
The data below refers to the latest quarter's data unless specified otherwise:
- Revenue: $175.6 million (down from $2.806 billion for the same quarter of the previous year)
- Revenues decreased by -93.7% over the last 12 months
- Total cruise operating expenses: $680.420 million (down from $1.544 billion for the same quarter of the previous year)
- Total cruise operating expenses decreased by -56.2 over the last 12 months
- Significant margin squeeze being experienced by Royal Caribbean Cruises with its costs and expenses declining far less than their revenues
- Net loss: -$1.63 billion (down from $472.8 million for the same quarter of the previous year)
- Diluted loss per share: -$7.83 (down from $2.25 profit for the same quarter of the previous year)
- Diluted number of shares outstanding: 209.385 million (down from 210.052 million for the same quarter of the previous year)
- Cash and cash equivalents: $4.146 billion
- Cash and cash equivalents per share: $19.80
- Cash and cash equivalents makes up 34.5% of the group's market capital
- Cash and cash equivalents makes up 12.4% of the group's total assets
- Accounts receivable: $205.921 million
- Accounts receivable makes up 0.6% of total assets
- Property and equipment: $25.647 billion
- Property and equipment makes up 77% of Royal Caribbean Group
- Stockholders equity in Royal Caribbean Group: $8.963 billion
- Stockholders equity per share: $42.8
- So Royal Caribbean Group is is trading at 1.31 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.
Royal Caribbean Group's management commentary on their 2nd quarter 20202 earnings
MIAMI – August 10, 2020 – Royal Caribbean Group (NYSE: RCL) today reported financial results for the second quarter of 2020 and commented on the business in light of the global COVID-19 pandemic.
Business Update
"The COVID-19 pandemic is posing an unprecedented challenge to our industry and society. Our teams are working tirelessly to return to service soonest and doing so by developing new health and safety protocols to protect the well-being of our guests, crew and destinations we visit,” said Richard D. Fain, Chairman and CEO. “In the meantime, we are using this time to refine our operations to be as efficient as we can while providing the great experiences that so many people are eagerly awaiting.”
Regarding the new health and safety protocols, the Company is being advised by a “Healthy Sail Panel” of experts in areas of science and public health with backgrounds in medical practice, research, infectious disease, biosecurity, hospitality and maritime operations
Business Update
"The COVID-19 pandemic is posing an unprecedented challenge to our industry and society. Our teams are working tirelessly to return to service soonest and doing so by developing new health and safety protocols to protect the well-being of our guests, crew and destinations we visit,” said Richard D. Fain, Chairman and CEO. “In the meantime, we are using this time to refine our operations to be as efficient as we can while providing the great experiences that so many people are eagerly awaiting.”
Regarding the new health and safety protocols, the Company is being advised by a “Healthy Sail Panel” of experts in areas of science and public health with backgrounds in medical practice, research, infectious disease, biosecurity, hospitality and maritime operations
Update on Liquidity Actions and Ongoing Uses of Cash
Given the current environment, the Company continues to prioritize and bolster its liquidity, working to ensure it is well positioned for recovery. Since the last earnings call, the Company has taken further actions to enhance its liquidity, preserve cash and secure additional financing. Among these latest efforts the Company highlighted the following:
“We continue to take substantial actions to bolster our financial position," said Jason T. Liberty, executive vice president and CFO. “We have accessed the capital market in an opportunistic manner and continue to aggressively manage our spend. We are prepared to navigate a volatile period while making decisions that position the Company well for the recovery.”
The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations. This range includes all interest expenses, including the increases driven by the latest capital raises. It also includes ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings. The Company is considering ways to further reduce its average monthly cash burn under a further prolonged out-of-service scenario and during re-start of operations
Capital Expenditures and Capacity Updates
The expected capital expenditures for the remainder of 2020 and 2021 are $0.6 billion and $1.8 billion, respectively. These expenditures are mostly related to newbuild projects. COVID-19 has impacted shipyard operations and will result in delivery delays for newbuilds. Currently, the Company expects that three of the five ships originally scheduled for delivery between July of 2020 and December of 2021 will be delivered within the remaining time frame. Two of these ships are Silver Moon and Silver Dawn, with capacity lower than 600 berths.
Update on Bookings
The extended suspension of cruising has significantly impacted bookings for the remainder of 2020 which are meaningfully lower than same time last year and at lower prices. Although still early in the booking cycle, the booked position for 2021 is trending well and is within historical ranges. The Company has implemented various programs to best serve its booked guests providing the choice of future cruise credits (“FCCs”) or the opportunity to “Lift & Shift” their booking to the same sailing the following year in lieu of providing cash refunds. For the booking period since our last business update, approximately 60% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the “Lift & Shift” program. Pricing for 2021 bookings is relatively flat year-over-year when including the negative yield impact of bookings made with future cruise credits; it is slightly up year-over-year when excluding them. As of June 30, 2020, the Company had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings. Approximately 48% of the guests booked on cancelled sailings have requested cash refunds.
2020 Outlook
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. Notwithstanding the foregoing, the Company expects to incur a net loss on both a US GAAP and adjusted basis for its third quarter and the 2020 fiscal year, the extent of which will depend on the timing and extent of the return to service
Given the current environment, the Company continues to prioritize and bolster its liquidity, working to ensure it is well positioned for recovery. Since the last earnings call, the Company has taken further actions to enhance its liquidity, preserve cash and secure additional financing. Among these latest efforts the Company highlighted the following:
- The issuance of $1.0 billion of priority guaranteed notes and $1.15 billion of convertible notes;
- The issuance of GBP 300 million of commercial paper in the UK providing over $370 million of additional liquidity;
- Completed a $0.9 billion 12-month debt amortization holiday from all export-credit backed facilities;
- Amended over $11 billion of commercial bank and export credit facilities to provide covenant waivers through the fourth quarter of 2021; and
- Further reduced operating expenses due to the fleet layup measures and actions to decrease sales, marketing and administrative expenses. In addition, the Company has $11.3 billion of committed credit facilities that are available to fund ship deliveries originally planned through 2025.
“We continue to take substantial actions to bolster our financial position," said Jason T. Liberty, executive vice president and CFO. “We have accessed the capital market in an opportunistic manner and continue to aggressively manage our spend. We are prepared to navigate a volatile period while making decisions that position the Company well for the recovery.”
The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations. This range includes all interest expenses, including the increases driven by the latest capital raises. It also includes ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings. The Company is considering ways to further reduce its average monthly cash burn under a further prolonged out-of-service scenario and during re-start of operations
Capital Expenditures and Capacity Updates
The expected capital expenditures for the remainder of 2020 and 2021 are $0.6 billion and $1.8 billion, respectively. These expenditures are mostly related to newbuild projects. COVID-19 has impacted shipyard operations and will result in delivery delays for newbuilds. Currently, the Company expects that three of the five ships originally scheduled for delivery between July of 2020 and December of 2021 will be delivered within the remaining time frame. Two of these ships are Silver Moon and Silver Dawn, with capacity lower than 600 berths.
Update on Bookings
The extended suspension of cruising has significantly impacted bookings for the remainder of 2020 which are meaningfully lower than same time last year and at lower prices. Although still early in the booking cycle, the booked position for 2021 is trending well and is within historical ranges. The Company has implemented various programs to best serve its booked guests providing the choice of future cruise credits (“FCCs”) or the opportunity to “Lift & Shift” their booking to the same sailing the following year in lieu of providing cash refunds. For the booking period since our last business update, approximately 60% of the 2021 bookings are new and the rest are due to the redemption of FCCs and the “Lift & Shift” program. Pricing for 2021 bookings is relatively flat year-over-year when including the negative yield impact of bookings made with future cruise credits; it is slightly up year-over-year when excluding them. As of June 30, 2020, the Company had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings. Approximately 48% of the guests booked on cancelled sailings have requested cash refunds.
2020 Outlook
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. Notwithstanding the foregoing, the Company expects to incur a net loss on both a US GAAP and adjusted basis for its third quarter and the 2020 fiscal year, the extent of which will depend on the timing and extent of the return to service
Royal Caribbean Group (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 Group stockholders (especially 2020) with the stock price 5 years ago trading around $90 and its currently trading at $57.31 That is a loss of -36.3% suffered by Royal Caribbean Group stockholders over the past 5 years.
The stock of Royal Caribbean Group 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 Group 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 Group 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 Group 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.
Royal Caribbean Group (RCL) vs Carnival (CCL) vs Norwegian Cruise Lines (NCLH)
The image below shows the stock performance of Royal Caribbean Group (RCL) vs Carnival (CCL) vs Norwegian Cruise Lines (NCLH) over the last 5 years. And as can be seen from the image the stock price movements of RCL,CCL and NCLH are very similar with all three companies stock recording significant declines at the start of 2020. The summary below shows the stock price returns provided by each firm over the last 5 years (sorted from best to worst performer)
- Royal Caribbean Group: -37.4%
- Carnival Corporation: -69.5%
- Norwegian Cruise Line Holdings: -74.3%
Recent coverage of Royal Caribbean Group (RCL)
The extract below covers the latest earnings report of Royal Caribbean Cruises as obtained from TheStreet.com
What happened
It's Monday, and things seem to be taking a turn for the better for cruise line stocks. In early afternoon trading, shares of Royal Caribbean (NYSE:RCL) are leading the cruise sector higher, up 10.9% as of 12:30 p.m. EDT after reporting earnings this morning. Rivals Carnival (NYSE:CCL) and Norwegian Cruise Line Holdings (NASDAQ:NCLH) are following suit, up 7.7% and 8.6%, respectively. But if you ask me, it all started with Royal Caribbean.
So what
Today is earnings day for Royal Caribbean, and in contrast to rival Norwegian Cruise Line last week, it appears that Royal Caribbean beat on revenue. Heading into earnings, analysts had forecast that Royal Caribbean would incur a pro forma $4.82 per share loss for its fiscal Q2, and with cruises suspended, they forecast revenue of only $43.5 million. Royal Caribbean's loss actually came in bigger than expected: $6.13 per share pro forma, and its GAAP loss was even worse at $7.83 per share. Still, Royal Caribbean's revenue was quite a bit better than predicted at $175.6 million, and investors seem to be focusing on that bright note today.
What happened
It's Monday, and things seem to be taking a turn for the better for cruise line stocks. In early afternoon trading, shares of Royal Caribbean (NYSE:RCL) are leading the cruise sector higher, up 10.9% as of 12:30 p.m. EDT after reporting earnings this morning. Rivals Carnival (NYSE:CCL) and Norwegian Cruise Line Holdings (NASDAQ:NCLH) are following suit, up 7.7% and 8.6%, respectively. But if you ask me, it all started with Royal Caribbean.
So what
Today is earnings day for Royal Caribbean, and in contrast to rival Norwegian Cruise Line last week, it appears that Royal Caribbean beat on revenue. Heading into earnings, analysts had forecast that Royal Caribbean would incur a pro forma $4.82 per share loss for its fiscal Q2, and with cruises suspended, they forecast revenue of only $43.5 million. Royal Caribbean's loss actually came in bigger than expected: $6.13 per share pro forma, and its GAAP loss was even worse at $7.83 per share. Still, Royal Caribbean's revenue was quite a bit better than predicted at $175.6 million, and investors seem to be focusing on that bright note today.
Royal Caribbean Group (NYSE: RCL) latest stock valuation
So what do we value Royal Caribbean Cruises at based on their 2nd 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 $42.80 a stock. We therefore believe the stock of Royal Caribbean Group is slightly overvalued
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 Group at $38.50 or below.
We expect the stock of Royal Caribbean Group to pull back slightly from its current price to levels closer to our target price in coming weeks and months.
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 Group at $38.50 or below.
We expect the stock of Royal Caribbean Group to pull back slightly from its current price to levels closer to our target price in coming weeks and months.
Next earnings release of Royal Caribbean Group (RCL)
It is expected that Royal Caribbean Group will release their 3rd quarter 2020 earnings report in early November 2020