Carnival Corporation (CCL): Don’t sign up for this cruise just yet

Carnival Corporation’s (NYSE: CCL) shares were up over 6% in afternoon trade on Tuesday. The stock has dropped 73% since the beginning of this year.

The travel industry has been impacted heavily by the coronavirus outbreak and Carnival is one of the casualties. Looking ahead, the company does not appear to be set for smooth sailing.

Carnival has halted its global cruise operations in an unprecedented manner and according to its latest regulatory filing, the company expects its financial results to be impacted significantly. In its most recent quarter, the COVID-19 outbreak had an impact of approx. $0.23 on the company’s net loss. Carnival currently estimates it will incur a net loss both on a GAAP and adjusted basis for fiscal 2020.

The cruise line also faces considerable uncertainty on its future prospects and expects travel bans and restrictions to continue to affect its operations. The outbreak is also expected to affect its ship deliveries during this year. The negative effects from these hindrances are expected to weigh on the numbers for a significant period well after the current crisis has subdued. So a recovery appears to be quite far off.

Carnival is taking steps to improve its liquidity. The company has suspended its dividends and share buybacks and is taking steps to reduce its expenses. These actions are expected to help meet obligations for the next 12 months.

However, earlier this month, Carnival fully drew down its $3 billion credit facility. The company was handed downgrades by rating agencies and if these continue, it could have a negative impact on debt financing.

Carnival has incurred a significant amount of costs in association with the coronavirus outbreak related to the transportation of its passengers to their homes and the provision of accommodation and other facilities to its stranded crew members.

These costs are expected to continue as well as increase in the near future due to the implementation of sanitization and other hygiene-related protocol, as well as measures to prevent future outbreaks.

Another problem that the cruise line faces is negative publicity and lawsuits. The company disclosed in its filing that it has received and expects to continue to receive lawsuits from passengers aboard its Grand Princess voyage in February.

If the company continues to face additional lawsuits, this could have an adverse impact on its numbers. The negative press could raise concerns for travelers and also impact future demand for cruises in general.

Looking ahead, Carnival faces slow revenues, increased costs as well as additional financial burdens from legal issues. The uncertainty with regards to its access to funding also remains a challenge. All in all, Carnival appears to face significant volatility ahead and in this situation, it is perhaps better to wait for the storm to pass.