Back to top

Analyst Blog

Royal Caribbean Cruises Ltd. (RCL - Analyst Report) posted mixed second-quarter 2014 results with earnings beating the Zacks Consensus Estimate but revenues missing the same. Shares of the cruise operator jumped 7.70% as the company upped its earnings guidance for 2014 on the back of strong booking trends and promotional activities.

Adjusted earnings of 66 cents per share comfortably beat the Zacks Consensus Estimate of 53 cents by 24.5%. Further, earnings came much ahead of the prior-year figure of 15 cents, driven primarily by higher year-over-year revenues. Further, earnings were higher than management’s expectation 45 to 55 cents. Adjusted earnings in the quarter exclude costs associated with certain initiatives undertaken by the company.

 


Total revenue in the quarter increased 5.2% year over year to $1.98 billion, due to higher passenger ticket revenues as well as increased onboard spending. However, revenues missed the Zacks Consensus Estimate of $1.99 billion by 0.5% which was due in part to higher cruise operating expenses.

Quarter Highlights

On a constant currency basis, net yields increased 2.6% year over year. This was higher than the company's guidance driven by strong close-in booking trends for European and China sailings despite continued softness in the Caribbean business. Yields were up in double digits in Europe and China which offset the Caribbean's softness.

Passenger ticket revenues were up 6.5% year over year to $1.46 billion. Onboard and other revenues increased 1.7% year over year to $524.9 million, reflecting onboard revenue management initiatives as well as benefits availed from fleet upgrades.

Net cruise costs (NCC), excluding fuel, decreased 4.7% on a constant currency basis, better than 1.3% increase in the last quarter. Net cruise costs were 220 basis points lower than the mid-point of the company’s expected range.

Total cruise operating expenses increased approximately 0.5% year over year to $1.3 billion mainly due to a rise in onboard and other expenses, increased commissions, transportation and other costs, increased fuel costs and a rise in food expenses.

Robust Bookings to Drive 2014, Earnings Guidance Up

The company raised its earnings guidance for 2014 and expects it in the range of $3.40 to $3.50 per share compared with the previous expectation of $3.25 to $3.45. This comes in the wake of strong second-quarter results.

Despite pressures in Caribbean sailings, the company has a positive outlook for the coming quarters on solid demand for European and Chinese sailings. It expects double-digit yield improvement in both the itineraries in 2014.

On a constant currency basis, the company expects net yields to increase in the range of 2.0% to 3.0% in 2014. Despite inflationary pressure, rising insurance costs and continued investments in product and marketing; net cruise costs, excluding fuel, are expected to be flat to slightly down in 2014.

Third-Quarter 2014 Guidance

The company expects earnings per share to be roughly $2.20 per share in the third quarter, much higher than $1.71 reported in the year-ago quarter.

The company expects net yields on a constant currency basis to increase 4.0% in the third quarter of 2014. Further, net cruise costs excluding fuel are expected to be flat to up 1%.

Double-Double Program

Royal Caribbean also announced a plan today called the Double-Double Program, which aims to double 2014 earnings per share by 2017 and bring the company’s return on capital to double-digit percentages.

Our Take

It seems that Royal Caribbean has started recovering from negative publicity after a series of mishaps, including virus outbreaks and engine fires. Robust bookings trends, especially in China and Europe, drove Royal Caribbean’s strong results.

Going forward, the company is expected to deliver solid results on strong booking trends and profitability initiatives. Also, efforts to counter volatility in fuel prices would improve margins.

Royal Caribbean currently sports a Zacks Rank #1 (Strong Buy). Other stocks in the same sector that can be considered include Vail Resorts Inc. (MTN - Snapshot Report), Dover Motorsports Inc. (DVD - Snapshot Report) and International Speedway Corp. (ISCA - Snapshot Report). All these stocks have a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.