Shares of Carnival (NYSE:CCL) are down 12% today after the cruise line operator announced plans to sell $1 billion worth of additional CCL stock.
In a statement, Carnival said that it will offer $1 billion of it common stock for sale. The Miami-based company said it will use proceeds from the sale for “general corporate purposes.” However, it is expected the money raised will go toward some of the massive debt Carnival accumulated during the Covid-19 pandemic when its operations were halted or scaled back.
Year-to-date, CCL stock is down 55% including today’s decline and trades around $9.70 per share.
What Happened With CCL Stock
Investors don’t like it when companies issue additional stock, as it dilutes the holdings of current shareholders. Share sales are also seen as a last resort that signal a company is in financial trouble and needs to raise cash, often to pay down mounting debt or make a debt servicing payment.
News that Carnival is selling additional stock comes days after the U.S. Centers for Disease Control and Prevention (CDC) announced it is ending its Covid-19 program for cruise ships, which includes mandatory testing and quarantine procedures. That’s seen as beneficial to cruise lines, as it enables them to operate more freely and moves them back to the way they were pre-pandemic.
Why It Matters
While disappointing, the share sale by Carnival is not surprising given the company’s current financial status. The cruise operator amassed $35 billion of debt during the pandemic, as most of its cruise ships were stuck in docks around the world. Carnival’s ships operated at 69% capacity during this year’s second quarter, which was below Wall Street forecasts for 72% capacity. The company had operated at 100% capacity prior to the global pandemic.
Carnival’s Q2 revenue increased nearly 50% from the previous quarter to $2.4 billion, but it fell short of analyst forecasts for $2.8 billion in revenue. The earnings-per-share loss in the second quarter was also steeper than expected at $1.61 compared to a loss of $1.18 that Wall Street had anticipated.
The company said it is struggling to manage high fuel costs, a worker shortage and the impact of inflation and rising interest rates on tourism. Now analysts say an economic recession could further hurt travel spending this year and next.
What’s Next for CCL Stock
It’s a bad day to be a CCL shareholder. Carnival’s stock is getting punched lower by more than 10% as investor sentiment sours on news that the company is issuing more stock. While unfortunate, Carnival clearly needs to raise cash to help it manage a difficult operating environment and pay down some of its crushing debt load.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.