After falling nearly 6% earlier today, shares of cruise line operator Royal Caribbean Cruises (NYSE:RCL) are down 4.5% in early afternoon trading. The reason: Its earnings.
Analysts expected the company to lose $0.44 per share (pro forma) on sales of just over $2 billion in an abbreviated first quarter that saw the company's fleet confined to quarters under an industrywide, CDC-issued no-sail order. Instead, Royal Caribbean reported a bigger loss -- $1.48, adjusted for "a non-cash asset impairment loss."
Revenue for the quarter was actually slightly ahead of expectations at $2.03 billion, but investors are giving Royal Caribbean no credit for that today. And honestly, why would they?
After all, total losses for the quarter, according to generally accepted accounting principles (GAAP), were far worse than the pro forma loss noted above: $6.91 per diluted share. That's about three quarters' worth of what Royal Caribbean earned in all of 2019, lost in just the first quarter of 2020.
Granted, Royal Caribbean's loss was entirely the "result of the COVID-19 pandemic on the business," as the company noted. But even so, a loss is a loss, and there's serious doubt now how many more such losses Royal Caribbean can endure before they scuttle the stock.
So what does the future hold in store for Royal Caribbean? On one hand, the company says "booking volumes for the remainder of 2020 are meaningfully lower than the same time last year," that "prices ... are down low-single digits," and "approximately 45% of the guests booked on canceled sailings have requested cash refunds."
Royal Caribbean is burning through cash at the rate of approximately $250 million to $275 million per month. As of April 30, the company "had liquidity of approximately $2.3 billion all in the form of cash and cash equivalents," and Royal Caribbean added another "approximately $1 billion" to those cash reserves with a senior secured notes offering yesterday.
Here's the truth: $3.3 billion divided by $262.5 million equals more than 12 months of liquidity before the company becomes insolvent.
At the same time, although it's still early in the booking cycle, the company says that "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."
"When our ships return to service, they will be sailing in a changed world," Royal Caribbean CEO Richard Fain said. But with 12 months of cash on board, and Royal Caribbean set to resume cruising in less than 12 months (at least, if the customers have anything to say about it), it looks to me like Royal Caribbean will survive to sail into that changed world after all.