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Why Carnival Corporation Stock Popped Nearly 7% This Morning

By Rich Smith - May 15, 2020 at 12:51PM

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Layoffs are designed to save Carnival "hundreds of millions of dollars" in salary costs.

What happened

Shares of cruise giant Carnival Corporation (CCL -1.04%) popped nearly 7% in early trading Friday before seeing those gains cut about in half. As of 1:05 p.m. EDT, however, Carnival stock was still up a good 3.5%.

So what

As Reuters reports this morning, Carnival plans to lay off 820 employees in Florida, and furlough a further 537, as the company remains under CDC-imposed restrictions laid down in a "no-sail" order that was extended in April.  

Combined, the layoffs and furloughs should affect less than 1% of the company's workforce, which according to data from S&P Global Market Intelligence, was last estimated at 150,000 persons. Despite the relatively small size of the cuts, however, Carnival says the savings from cutting those salaries, as well as other reductions to its payroll and work weeks, could amount to "hundreds of millions of dollars" at a time when the company has essentially no revenue coming in to offset its operating costs.  

Cruise ship at sea.

Image source: Getty Images.

Now what

Will those savings be enough? After all, as my fellow contributor Daniel Kline recently pointed out, Carnival is burning through cash at the rate of $1 billion per month while docked. Assuming the hundreds of millions of dollars saved by laying off a few hundred employees is an annual figure, therefore, it's still just a drop in the bucket in a company that could be burning through more than $11 billion annually while stuck in port.

Still, every little bit of savings helps, and helps ensure that the $6.4 billion that Carnival raised last month will be enough to see Carnival through the storm.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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