Shares of cruise line operator Royal Caribbean (RCL 1.41%) fell by 4.8% on Friday after the company reported a big fourth-quarter earnings miss, and warned that its return to profitability will arrive later this year than previously expected due to the omicron coronavirus surge. Its peers Carnival (CCL 2.54%) and Norwegian Cruise Line Holdings (NCLH) got caught in its wake: Carnival stock closed Friday down 1.9%, while Norwegian dipped by 1.1%
But that was last week. As this week starts, all three of these cruise stocks are looking golden. As of 12:20 p.m. ET Monday:
- Norwegian is up 6.4%;
- Royal Caribbean is rising 7.4%;
- And Carnival is bringing up the rear with a 5.7% gain.
Last week, Royal Caribbean came up short of analysts' expectations on earnings for Q4 2021, and management warned that the rapid spread of the omicron variant of COVID-19 had cut into demand for bookings in the first half of 2022. As a result, "our return to profitability [will be postponed] by a few months," said the company. That probably means that the milestone the company had expected to reach in Q2, it won't reach until Q3.
Investors obviously didn't like hearing that. But on Monday, Stifel Nicolaus analyst Steven Wieczynski offered a more optimistic take on the situation, and his outlook appears to be floating all the cruise companies' boats. As StreetInsider.com reports, Stifel has only had to lower its 2022/2023 earnings estimates "slightly" because of "RCL's ... delayed ... full return to service due to recent variant headwinds."
More than that: "We think RCL and the rest of the cruise operators are set up exceptionally well heading into 2H22 given demand/pricing patterns continue to strengthen and the risk around additional capital raises seems remote," predicts Wieczynski.
And I have to say -- I kind of agree with the analyst on this one. On the one hand, the prospect of another quarter's delay to profitability at Royal Caribbean -- and probably at the other cruise operators as well -- is disappointing. But Royal Caribbean did say last week that the disruption caused by the omicron COVID-19 wave is only a "short-term operational challenge." Management still expects to be back operating within historical ranges by the second half of this year, and for its business to be both profitable and operating cash flow positive.
This probably won't happen fast enough to turn Royal Caribbean profitable for 2022, admits Stifel -- and according to analysts polled by S&P Global Market Intelligence, it won't happen fast enough for Carnival or Norwegian to be profitable for this year, either. But if profitability returns in the second half, and can be maintained, there's every reason to hope that this industry will be back in the black by 2023, and no later.