Zacks_Analysts' Blog : Royal Caribbean Beats Consensus - Analyst Blog

Royal Caribbean Cruises Ltd. (RCL) has reported third-quarter 2011 adjusted earnings of $1.90 per share, surpassing the Zacks Consensus Estimate of $1.86. The earnings showed a strong improvement from $1.61 per share earned the year earlier.

During the quarter, there was an 8 cent per share mark-to-market revaluation loss on the company's WTI fuel option portfolio. Including this, earnings were $1.82 a share.

The quarter’s earnings came at the higher end of management’s guidance range of 1.85 and $1.90 per share on a modest growth in bookings and strict cost control. 

Quarter Highlights

Total revenue in the quarter increased 12.7% year over year to $2,322.0 million, exceeding the Zacks Consensus Estimate of $2,289.0 million. The increase was driven by a rise in capacity and net yield.

Net yield upped 5.3% (2.6% on a Constant-Currency basis) year over year thanks to strong demand for its Caribbean and Alaska products that was in sync with the economic revival. With the Alaska yield clocking a historically high growth, both theses markets witnessed increases in excess of 15% in tickets. The rise in yield was driven by a 14.1% improvement in net ticket revenue and an 8.8% increase in on-board revenue. Occupancy rate rose marginally to 107.9% from 107.3% in the prior-year quarter.

Total cruise operating expenses grew 13.4% year over year to $1.4 billion. Net cruise costs per passenger rose 2.5% excluding fuel (up 0.7% on a constant-currency basis).

Financials

At quarter end, the company had total assets worth $20.2 billion versus $19.7 billion at year-end 2010. Royal Caribbean’s net debt was 49.7% of capital compared with 52.5% as of December 31, 2010.

Guidance

For the fourth quarter, Royal Caribbean expects the bottom line to range between 9 cents and 19 cents per share. Net revenue yields are expected to increase 3-4% (same at constant currency).

Excluding fuel expenses, net cruise costs are estimated to rise 4% (up 3-4% at constant currency) in the upcoming quarter. Fuel costs are expected to be $204 million.

For full-year 2011, management now expects earnings per share in the range of $2.70 to $2.80 (earlier $2.85 to $2.95). Earlier management reduced its guidance from $3.10-$3.30 to $2.85-$2.95 per share. Net revenue yield is expected to increase 4% (up 2%–3% at constant currency). Net cruise cost excluding fuel is projected to increase 2-3% (up 1% to 2% at constant currency). Fuel expenses are expected to be $761 million per metric ton.

Our Take

We are less optimistic on the stock over the short term. The company cut its full-year earnings guidance range twice. The cost environment is also heating up. Hence, we expect estimates to go down in the coming days.

However, as these threats are short-term in nature, we remain positive on the stock of the world’s second-largest cruise operator based on a host of factors including strong booking momentum in other itineraries, efficient expense control, especially fuel conservation efforts, and the slowdown in industry capacity.

Royal Caribbean currently retains the Zacks #3 Rank, which translates into a short-term Hold rating. However, we are maintaining our long-term Underperform recommendation on the stock.

The company’s biggest competitor, Carnival Corporation (CCL) reported its third quarter earnings of $1.71, which surpassed our estimate and were higher than the year-ago earnings of $1.62.