It is Monday and things appear to be improving for cruise line inventories. In the early afternoon, the actions of Royal Caribbean (NYSE: RCL) lead the cruise industry higher, up 10.9% as of 12:30 p.m. EDT after reporting results this morning.
Rivals Carnival (NYSE: CCL) and Norwegian Cruise Line Holdings (NASDAQ: NCLH) followed suit, up 7.7% and 8.6%, respectively. But if you ask me, it all started with Royal Caribbean.
Today is profit day for Royal Caribbean, and unlike rival Norwegian Cruise Line last week, it looks like Royal Caribbean has beaten revenue.
As for the results, analysts had predicted Royal Caribbean would suffer a pro forma loss of $ 4.82 per share for its fiscal Q2, and with the cruises suspended, they expected revenue of just $ 43.5 million. of dollars. Royal Caribbean’s loss was actually bigger than expected: $ 6.13 per pro forma share, and its GAAP loss was even worse at $ 7.83 per share. Still, Royal Caribbean’s revenue was a little better than expected at $ 175.6 million, and investors seem to be focused on that bright note today.
Should investors be this optimistic?
Royal Caribbean correctly blamed the coronavirus pandemic, which forced the cancellation of all of its second-quarter crossings, both for the sharp drop in revenue and the huge loss under GAAP. “The COVID-19 pandemic poses an unprecedented challenge to our industry and our society,” said CEO Richard Fain. And despite investor reaction to today’s income news, the challenge may become more serious, not less.
The last one we heard, Royal Caribbean was aiming for a consumption rate of $ 250 million to $ 275 million per month while its ships are confined in port. In today’s report, the company said its monthly cash consumption now averages between $ 250 million and $ 290 million. So, just as we saw with Norwegian Cruise Line last week, cash consumption rates appear to be slightly higher, battling management efforts to bring them down.
Based on Royal Caribbean’s statement that it has “about $ 4.1 billion, all in cash and cash equivalents,” even a consumption rate of $ 290 million per month implies that He still has over a year of cash left in the pot. finance it until the end of this recession. But if burn rates continue to rise beyond expected, that would clearly be a risk to watch – for Royal Caribbean shareholders, as well as investors in other cruise stocks.