Royal Caribbean stock (NYSE:RCL), which was once trading at $43 per share, was down a startling 46% year to date, despite a brisk sales rebound after the COVID-19 outbreak. While the cruise line is fast returning to regular operations, the company’s debt pile continues to be a burden.
An industry in distress
Few sectors were as severely affected by the epidemic as cruise cruising. Passenger ships, with their cramped quarters and frequently inadequate ventilation, proved excellent breeding grounds for the rapidly spreading virus. Furthermore, the Centers for Disease Control and Prevention slapped a seven-month no-sail order on the businesses in March 2020, prohibiting these enterprises from functioning in their most critical market.
The substantial decline in revenue (Royal Caribbean incurred an operational deficit of $4.6 billion in 2020 and $3.87 billion in 2021) caused the business to sell some of its older ships, issue new shares, and borrow money to survive.
Nonetheless, it seems to be enjoying a brisk rebound in the aftermath of the crisis.
RCL Stock: Remarkable Recovery
Royal Caribbean’s second-quarter profits show how swiftly the company is recovering from the epidemic. Year over year, total revenue increased from $50.9 million to $2.18 billion as the business reopened its entire worldwide fleet. Nonetheless, operational expenses remain high owing to inflation and rising energy prices, which contributed to a $218.6 million operating deficit over the year.
Because Royal Caribbean stock (NYSE:RCL) financial sheet has worsened in recent years, the bottom line weakness is a serious problem. The business has $17.74 billion in long-term debt, which it anticipates will correspond to interest expenditure of $310 million to $320 million in the third quarter. Nonetheless, management seems to be upbeat about the future.
Around 70% of the debt is subject to fixed interest rates, minimizing the impact of Fed rate rises on its solvency. In addition, management anticipates a return to GAAP profitability in the third quarter, with profits per share ranging from $0.05 to $0.25. They also anticipate adjusted profits before interest, taxes, depreciation, and amortization (EBITDA) of $700 million to $750 million, putting the corporation in a favorable position to begin dealing with its significant debt burden.
RCL Stock: The greatest of the worst?
Carnival Corporation, Royal Caribbean’s main competitor, reported third-quarter results this month. The business disclosed much larger long-term debt ($28.5 billion vs. $17.74 billion for Royal Caribbean) and significantly less adjusted EBITDA ($300 million versus Royal Caribbean’s planned $700 million to $750 million in the quarter). Royal Caribbean seems to be in a far better position to manage its debt and ultimately begin earning value for shareholders.
However, the cruise business as a whole continues to be dangerous. Both corporations are unprepared to deal with macroeconomic difficulties such as increasing interest rates and the likelihood of a global recession causing another crisis before fully recovering from the last one. Until some of these difficulties are rectified, investors should use caution.
Featured Image – Megapixl © Pressfoto
Author Okoro Chinedu 
