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Cruise Stocks Sink After Carnival Announces $1 Billion Share Sale

Topline

Shares of major cruise lines widely tanked on Thursday after Carnival announced a $1 billion stock sale—its second capital raise in recent months—in order to to pay down debt, as the cruise industry continues to feel the impact of the Covid-19 pandemic, surging inflation and higher fuel prices.

Key Facts

Shares of major cruise operator Carnival fell nearly 12% on Thursday after the company said it would sell $1 billion worth of stock—just over 102 million shares—at $9.95 per share, with the option to buy an additional 15.3 million shares.

In what is Carnival’s second capital raise since a debt offering in May, the company said it “expects to use the net proceeds from the offering for general corporate purposes, which could include addressing 2023 debt maturities.”

Carnival ended the second quarter with roughly $35 billion in debt—more than its peers—and $7.5 billion in cash, but analysts last month warned that could “quickly shrink” if customer demand takes a hit in the form of fewer bookings and more canceled deposits.

Rivals Norwegian Cruise Line and Royal Caribbean Cruises saw their stocks fall over 8% and nearly 9%, respectively, as the news spooked investors.

The move to raise more money will likely lead to more questions about the health of the cruise business, according to a recent note from Stifel analysts, who say that the stock sale will dilute existing shareholders’ stakes by around 8.5%.

Despite the negative headline, the firm believes that Carnival is instead being “proactive” and trying to get ahead of debt payments that are due next year, which executives have hinted at in previous quarters.

Crucial Quote:

It’s no surprise that investors will “panic and assume that any cruise-related name would probably be looking to raise equity as well at some point in the near-future,” Stifel analysts predict.

Surprising Fact:

Carnival’s stock is down 54% so far this year, while Royal Caribbean and Norwegian have fallen 56% and 44%, respectively.

Key Background:

Cruise lines took a major hit during pandemic lockdowns in 2020, which saw no sailing orders throughout most of the year. Many cruise companies came under pressure with business at a standstill, taking on large amounts of debt in the interim. Though cruises have since seen a rebound in demand as travel returns—and major operators are experiencing a busy summer season, many are still seeing a slow return to full capacity. Amid a challenging economic climate this year, high inflation and surging oil prices are starting to have a negative impact on the industry.

Further Reading:

Carnival Shares Plunge Nearly 15% As Morgan Stanley Warns Of Potential Stock Wipeout (Forbes)