When Royal Caribbean International (NYSE: RCL) reported its full-year 2019 results on Feb. 4, it guided for adjusted earnings per share of $10.40 to $10.70. However, it acknowledged that this guidance did not include any potential impact from COVID-19, as it couldn't reasonably predict the full extent of the fast-changing situation at the time.
Now Royal Caribbean is giving an update reflecting the impact of the coronavirus. Per its press release, all guidance for 2020 has been withdrawn. The company is also increasing its liquidity to make it through what will be a challenging year. In addition, it has increased its credit by $550 million and plans to cut costs to bring its total extra liquidity to $1.7 billion.
Image source: Royal Caribbean.
Hard knocks for cruises
Almost everything on Wall Street is down over the last couple weeks, but cruise stocks are among the hardest hit in the consumer discretionary sector. Shares of Royal Caribbean are down 64% from 52-week highs as of this writing. Competitor Carnival Corporation is similarly down 62%.
The fear driving this sell-off makes sense on the surface, as the hit to cruise lines' revenue and earnings is real. The U.S. Department of State is requesting people not embark on cruises right now. And with the various cruise ships that have already been detained, many are taking advantage of the cancellation provisions cruise lines are offering.
Between cancelled cruises and reduced passenger numbers, Royal Caribbean could have had a real cash flow problem in 2020. Shareholders committed to holding long-term should be encouraged that at least the company has provided a liquidity solution to keep the ship afloat in the coming year.
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