Carnival Corp. (CCL): Vaccine rollout and pent-up demand provide optimism for the cruise operator

Shares of Carnival Corp. (NYSE: CCL) were down over 2% on Thursday. The company reported first quarter 2021 earnings results a day ago which missed expectations. Despite seeing a drastic drop in revenues and a wider loss for the quarter, Carnival believes the distribution of vaccines and pent-up demand will help drive its recovery in the near term.

Quarterly performance

For the first quarter of 2021, the company recorded revenues of only $26 million compared to $4.7 billion in the year-ago period. Due to the pause in guest cruise operations, the company was unable to generate revenues for the current quarter. Net loss, both on a GAAP and adjusted basis, amounted to $2 billion for the period. In the prior-year quarter, GAAP losses were $781 million.

Bookings and demand

Despite the challenges, Carnival has seen strong booking volumes. In Q1, volumes were around 90% higher than those seen in the fourth quarter of 2020. Cumulative advanced bookings for full year 2022 were ahead of 2019 levels, even without much advertising and marketing.

These trends are reflective of the significant pent-up demand and long-term potential for cruising. As guest cruise operations were halted in 2020, the booking comparisons are being made against 2019. Total customer deposits at quarter-end were $2.2 billion. In Q1, customer deposits on new bookings offset the impact of refunds provided.

Carnival is bringing on new ships to take advantage of the pent-up demand while also offloading the less-efficient ships from its fleet. The exit of these less-efficient ships will yield significant cost efficiencies for the company. Carnival is also optimistic about the distribution of vaccines and the positive change it will bring in the travel industry.

Cash position

Carnival ended the first quarter of 2021 with cash and short-term investments of $11.5 billion, which is higher than the fourth quarter of 2020. During the quarter, the company improved its liquidity position through a senior unsecured note offering and an equity offering, which combined provided $4.4 billion.

Monthly average cash burn for Q1 was $500 million, which was better than expected, mainly due to the timing of capital expenditures. The company had earlier projected a cash burn of $600 million. For the first half of 2021, the monthly average cash burn rate is expected to be approx. $550 million, including the additional costs related to restarting operations. The rate for the first half of the year is lower than the company’s previous projections.

Stock

The stock has gained 30% since the beginning of this year and 128% over the past 12 months.

Click here to read the full transcript of Carnival Corp. Q1 2021 earnings conference call