Royal Caribbean Beats; Guides Lower

Royal Caribbean Cruises Ltd. ( RCL - Analyst Report ) has reported first-quarter 2012 adjusted earnings of 20 cents per share, surpassing the Zacks Consensus Estimate of 15 cents. Earnings fell from 25 cents per share posted in the year-earlier quarter.

Quarter Highlights

Total revenue in the quarter increased 9.7% year over year to $1,834.5 million.

Net yield upped 6.4% year over year (7.0% on a constant currency basis).

The rise in yield was driven by a 10.2% improvement in net ticket revenue and an 8.2% increase in on-board revenue. The occupancy rate inched up to 104.6% from 104.3% in the prior-year quarter.

Total cruise operating expenses rose 14.0% year over year to $1,255.1 billion.

Financials

At quarter end, the company had total assets worth $20.0 billion versus $19.8 billion at the end of fourth quarter of 2011. At the end of the quarter, its total long-term debt was $7.9 billion, flat year over year.

Guidance

For the second quarter of fiscal 2012, Royal Caribbean expects the bottom line to range between losses of 5 cents and a gain of 5 cents. Net revenue yield is expected to increase 4–5% at constant currency. Excluding fuel expenses, net cruise costs are estimated to increase 10–11% at constant currency in the upcoming quarter. Fuel costs are expected to be $232 million.

For full-year 2012, management now expects earnings per share in the range of $1.80 to $2.10 (earlier $1.80 to $2.10). Net revenue yield is expected to increase 2% to 5% at constant currency. Net cruise cost excluding fuel is projected to increase 5% at constant currency. Fuel expenses are expected to be $923 million per metric ton.

Our Take

We are a bit doubtful about the sector’s performance over the near term as another major cruise operator and Royal Caribbean’s close competitor Carnival Corp.’s ( CCL - Analyst Report ) ship Costa Concordia ran aground at Italy’s west coast in January. The tragedy shattered passengers’ confidence and result in subdued bookings. Europe, the epicenter of the catastrophe is still reeling under pressure. The faltering market sentiment is reflected by the company’s reduced earnings guidance.

However, as these threats are short term in nature, we remain positive on the stock of the world’s second-largest cruise operator over the long term based on a host of factors including strong booking momentum for the fourth quarter of 2012 and for 2013 at year-over-year higher prices, fuel conservation efforts and the slowdown in industry capacity.

Royal Caribbean currently retains the Zacks #4 Rank, which translates into a short-term Sell rating.