Finance geeks

[Heidi13]

6 hours ago, TRLD said:

The cruise lines passed the milestone on being able to cover the debt last year  They are now showing a bottom line profit after depreciation and debt payments.  Since basically depreciation is money already spent, that gives them a fair amount of money for debt reduction.

 

 

When I read the latest Carnival earnings report it still stated a loss of over $200 Million. May have been better than the forecast, but they are still operating at a loss.

[TRLD]

16 minutes ago, Heidi13 said:

 

When I read the latest Carnival earnings report it still stated a loss of over $200 Million. May have been better than the forecast, but they are still operating at a loss.

keep in mind that is after depreciation and interest payment. Profit is totally different than free cash flow. Depreciation is an expense taken that does not involve current cash expenditure. It is simple recognition of a portion of a capital expense spent previously. Thus they are spring off a lot of cash that can be used for debt reduction and expense payments. 

Edited April 9 by TRLD

[Heidi13]

8 minutes ago, TRLD said:

keep in mind that is after depreciation and interest payment. Profit is totally different than free cash flow. Depreciation is an expense taken that does not involve current cash expenditure. It is simple recognition of a portion of a capital expense spent previously. Thus they are spring off a lot of cash that can be used for debt reduction and expense payments. 

 

Having significant cash reserves is an improvement, but they still have a negative ROI, haven't paid dividends for 4 years and have a debt/equity ratio of >4.5. All poor metrics that trump improvements in their cash flow, at least in my experience.

 

They are improving the debt position, but they have a long way to go before they can be considered a prudent investment. One more major marine incident and the cash flow could evaporate.

[TRLD]

33 minutes ago, Heidi13 said:

 

Having significant cash reserves is an improvement, but they still have a negative ROI, haven't paid dividends for 4 years and have a debt/equity ratio of >4.5. All poor metrics that trump improvements in their cash flow, at least in my experience.

 

They are improving the debt position, but they have a long way to go before they can be considered a prudent investment. One more major marine incident and the cash flow could evaporate.

there bond rating was improved by 2 levels to BB- in December and their leverage should improve to 5x by the end of the year. Would not be surprised for it to be back at investment grade by the end of this year.

 

Free cash flow is actually the critical metric because it shows that it can handle the interest expense and pay down the debt in a reasonable period of time without becoming a zombie company. When a company has this amount of positive  cash flow it can get access to the credit markets in spite of the BB-. The interest rates on its most recent refinancing efforts have replaced some very high interest paper from the shutdown with much more competitive interest rates. Certainly not junk rates.

 

The biggest impact of the debt is to hold down the stock price and limit new builds for the next few years reducing capacity expansion at a time when occupancy would support additional expansion and continued replacement of older smaller ships with more cost efficient new builds.

 

Guess we will have to see in 5 years what view works out.

 

At this point the stock is fairly priced based upon the time frame before they can start capacity expansion and the existing debt level that will cap profitability

Edited April 9 by TRLD

[chengkp75]

8 hours ago, TRLD said:

Depreciation is an expense taken that does not involve current cash expenditure.

May be fiscally ignorant, but how does depreciation come into play for a corporation that does not pay any corporate tax?

[Heidi13]

8 hours ago, TRLD said:

there bond rating was improved by 2 levels to BB- in December and their leverage should improve to 5x by the end of the year. Would not be surprised for it to be back at investment grade by the end of this year.

 

Free cash flow is actually the critical metric because it shows that it can handle the interest expense and pay down the debt in a reasonable period of time without becoming a zombie company. When a company has this amount of positive  cash flow it can get access to the credit markets in spite of the BB-. The interest rates on its most recent refinancing efforts have replaced some very high interest paper from the shutdown with much more competitive interest rates. Certainly not junk rates.

 

The biggest impact of the debt is to hold down the stock price and limit new builds for the next few years reducing capacity expansion at a time when occupancy would support additional expansion and continued replacement of older smaller ships with more cost efficient new builds.

 

Guess we will have to see in 5 years what view works out.

 

At this point the stock is fairly priced based upon the time frame before they can start capacity expansion and the existing debt level that will cap profitability

 

The additional longer term consideration is Carnival's inability to submit numerous orders for new tonnage, to replace the older tonnage sold at fire sale prices during Covid. Other cruise lines are jumping on the newbuild bandwagon with Viking having 6 confirmed and 4 options this year and NCL just announcing 8 newbuilds.

 

Due to low order books, they are getting advantageous pricing, so by the time Carnival's debt is written down, newbuild prices will have increased significantly.

 

At present, I believe Carnival have only recently ordered 2 newbuilds across all their brands. Once they can finally order additional new tonnage, the cost per lower berth will be significantly higher.

[mcrcruiser]

9 hours ago, Heidi13 said:

 

Having significant cash reserves is an improvement, but they still have a negative ROI, haven't paid dividends for 4 years and have a debt/equity ratio of >4.5. All poor metrics that trump improvements in their cash flow, at least in my experience.

 

They are improving the debt position, but they have a long way to go before they can be considered a prudent investment. One more major marine incident and the cash flow could evaporate.

Yup but ,then you will pay double or more per share . now is the time to accumulate shares  not when CCL turns a  positive ROI  .That is  one of the ways to make money in stocks 

[Gail & Marty sailing away]

On 4/9/2024 at 5:24 PM, mcrcruiser said:

Yup but ,then you will pay double or more per share . now is the time to accumulate shares  not when CCL turns a  positive ROI  .That is  one of the ways to make money in stocks 

Don't tell everyone.

[mcrcruiser]

8 minutes ago, Gail & Marty sailing away said:

Don't tell everyone.  The amrt money is accumulating shares . In the meantime the OBCs off set the lower value 

[TRLD]

2 hours ago, chengkp75 said:

May be fiscally ignorant, but how does depreciation come into play for a corporation that does not pay any corporate tax?

Because under US and most other countries accounting standards capital expenditures cannot be expensed immediately when the money is spent. They have to be taken over time depending upon the life time of the asset. So when a new ship is purchased the money is spent, the value of the ship is listed as an asset on the books and each year a portion of that value is taken as an expense (depreciation), the asset value lowered. Of course even though it shows as an expense and effects profits no actual money was spent that year and when it comes to cash flow represents money generated by the company above indicated profit.

 

It is why profit and cash flow are to different things and why some capital intensive businesses may show no profits for years but doing quite nicely.

 

Normally that cash would be used in purchasing new capital assets and it would all balance out.  At this time CCL and the other cruise line holding companies have dramatically slowed down on new ship orders, they are allowing their overall capital asset balance  to drop.

 

So basically one would would need to take profits + depreciation - new capital acquisition cost to get an idea of free cash.

 

Now any new ships  that are being built are being done with low interest loans supported by the countries where those ships are being built which is why you are seeing new low interest debt being added as the precovid orders are being completed, free cash flow is being used to cover interest and pay down debt even though profit is low.

 

We will see some new ships getting ordered, but nothing like the expansion of the 2010s and that lake of new capacity will impact all.of the holding companies.

[TRLD]

2 hours ago, mcrcruiser said:

Yup but ,then you will pay double or more per share . now is the time to accumulate shares  not when CCL turns a  positive ROI  .That is  one of the ways to make money in stocks 

Maybe, maybe not. CCL may bounce around this range for years. As an investment cruise lines are like another very capital intensive business airlines. As a CEO of American Airlines once said airlines are very good businesses, just not very good investments.

 

Would not expect the stock.to do much for the next 5 years or so. Far better places to invest.

[TRLD]

3 hours ago, Heidi13 said:

 

The additional longer term consideration is Carnival's inability to submit numerous orders for new tonnage, to replace the older tonnage sold at fire sale prices during Covid. Other cruise lines are jumping on the newbuild bandwagon with Viking having 6 confirmed and 4 options this year and NCL just announcing 8 newbuilds.

 

Due to low order books, they are getting advantageous pricing, so by the time Carnival's debt is written down, newbuild prices will have increased significantly.

 

At present, I believe Carnival have only recently ordered 2 newbuilds across all their brands. Once they can finally order additional new tonnage, the cost per lower berth will be significantly higher.

Viking, MSC, and others are putting money into premium and luxury ships, but industry wide the total level of investment is low.

 

Viking is a unique situation after all their practice of requiring payment a year in advance gives them a pool of cash that is supporting their building. They are following the same plan in ocean cruising as they did in river cruising.

 

MSC has their cargo business.

 

However the premium and luxury area where some ships are being built is not the big driver of RCL  NCLH, and CCL. Most of their revenue comes from the main stream lines. The large ship building for the mass market lines are pretty concentrated.

 

Now as the preCovid large ship orders finish up the countries where those shipyards are located are not going to want to see them go idle. As a result you will see them offering very good loan terms at low interest rates. Then you will see some new orders  being placed. That will allow ship replacement and some expansion, but at a much slower rate then before peeCovid. 

 

The impact will mean that debt will be around for a longer period, probably 10 years or even longer to get back to.precovid levels, but with steady reduction and steady reduction in interest levels.

 

While ship cost invariably will increase over time so will fares and revenue. As this point  fares are likely to increase faster than ship costs.

 

If you look at the timing of the NCLH large ship orders they are for 2030, 2032, 3034, 2036 if financing is available. More slot holders than anything else. NCLH is probably in the worst shape as far as debt of the 3 holding companies and is so far the most aggressive in placing orders.

Edited April 9 by TRLD

[mcrcruiser]

45 minutes ago, TRLD said:

Maybe, maybe not. CCL may bounce around this range for years. As an investment cruise lines are like another very capital intensive business airlines. As a CEO of American Airlines once said airlines are very good businesses, just not very good investments.

 

Would not expect the stock.to do much for the next 5 years or so. Far better places to invest.

 imo not 5 years for the stock to be in the 20s  .Could even happen by 2025 as CCL mangement is now working on exceeding bookings for 2025

[TRLD]

16 minutes ago, mcrcruiser said:

 imo not 5 years for the stock to be in the 20s  .Could even happen by 2025 as CCL mangement is now working on exceeding bookings for 2025

It my bounce into the 20s it may bounce done to 10. Mostly bounce around until conditions change.

 

 My money is elsewhere no reason to hold more than 100 shares.

[TRLD]

4 hours ago, Heidi13 said:

 

The additional longer term consideration is Carnival's inability to submit numerous orders for new tonnage, to replace the older tonnage sold at fire sale prices during Covid. Other cruise lines are jumping on the newbuild bandwagon with Viking having 6 confirmed and 4 options this year and NCL just announcing 8 newbuilds.

 

Due to low order books, they are getting advantageous pricing, so by the time Carnival's debt is written down, newbuild prices will have increased significantly.

 

At present, I believe Carnival have only recently ordered 2 newbuilds across all their brands. Once they can finally order additional new tonnage, the cost per lower berth will be significantly higher.

The NCLH orders are mostly placeholders dependent upon good loan terms. I expect it's big brothers RCL and CCL to do more to lock in those terms before they place their orders for a similar time frame.