Royal Caribbean Earnings Beat
Royal Caribbean Cruises Ltd.’s (RCL) first-quarter 2013 earnings of 35 cents per share surpassed the Zacks Consensus Estimate of 20 cents per share by 75% and also increased 66.7% year over year. Improvement in top-line coupled with efficient cost control measures boosted earnings during the quarter.
Quarter Highlights
Total revenues in the quarter inched up 4.2% year over year to $1.9 billion, in line with the Zacks Consensus Estimate. Higher net yields boosted the revenues during the quarter.
Net yields nudged up 3.6% year over year on a constant-currency basis backed by a 3.1% improvement in net ticket revenues and a 7.3% increase in on-board revenues. Better-than-expected close-in bookings, higher on-board spending, better pricing and improving occupancy rate drove the net yields during the quarter. The occupancy rate increased 30 basis points (bps) to 104.9% in the first quarter.
Total cruise operating expenses increased 2.2% year over year to $1.3 billion mainly due to a 13% rise in on-board and other expenses and 5.2% and 5.5% increase in food expenses and fuel costs, respectively. Net cruise costs (fuel excluded) declined 0.5% on a constant-currency basis as marketing costs have declined during the quarter.
Guidance
Second-Quarter 2013
For the second quarter of 2013, Royal Caribbean expects its earnings to range between 10-15 cents per share. The Zacks Consensus Estimate for second quarter is 18 cents per share. Earnings in the quarter are expected to be affected by higher fuel pricing and exchange rate fluctuation.
Net yields are expected to increase 3% at constant-currency basis in the second quarter. Excluding fuel expenses, net cruise costs are also estimated to increase 3% in constant currency. Fuel costs are estimated to be $236 million per metric ton.
Full-Year 2013 Outlook Retained
Royal Caribbean has retained its earnings per share and net yield guidance for 2013. Management expects its earnings per share in the range of $2.30–$2.50 per share in 2013. Net revenue yield is expected to increase 2%–4% at constant currency. Net cruise cost excluding fuel costs is projected to increase 2%–3% in constant currency. Fuel expenses are expected to be $928 million per metric ton, down from the previous estimate of $960 million per metric ton.
Amid an uncertain economic condition in Europe, Royal Caribbean has been witnessing strong demand in the region in 2013. The U.S. market is also showing healthy signs in terms of bookings.
Our Take
Given Royal Caribbean’s relatively stabilized booking patterns, cost containment efforts, and better-than-expected on-board revenue gains, we remain optimistic on the world’s second-largest cruise operator.
However, higher costs due to deployment changes and several marketing activities remain major causes of concern. In addition to these, austerity measures and faltering consumer sentiment in Europe continues to bother the company.
Another cruise operator, Carnival Corporation (CCL) is also recovering at a steady pace from the Costa Concordia cruise disaster. Carnival’s earnings in the first quarter were ahead of the Zacks Consensus Estimate but its revenues missed the same by 1.1%.
Royal Caribbean currently carries a Zacks Rank #3 (Hold). Some other stocks in the entertainment industry that are expected to perform well include Carmike Cinemas Inc. (CKEC) and Speedway Motorsports Inc. (TRK) both carrying a Zacks Rank #1 (Strong Buy).
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