Royal Caribbean Cruises Ltd. (RCL) posted fourth-quarter and full-year 2014 results with both earnings and revenues lagging the respective Zacks Consensus Estimate.
Adjusted earnings of 32 cents per share missed the Zacks Consensus Estimate of 41 cents by 22%. Earnings also fell short of management’s guidance range of 35 to 40 cents. The downside was primarily due to lower revenues.
However, earnings were up 39.1% year over year.
Total revenue decreased 2% year over year to $1.82 billion due to lower onboard spending. Further, revenues missed the Zacks Consensus Estimate of $1.87 billion by 2.7%.
Quarter Highlights
On a constant currency basis, net yields increased 2.7% year over year. This was lower than the company's guidance of 3.5% increase, mainly due to weaker-than-estimated Caribbean pricing environment.
Passenger ticket revenues were up approximately 1.1% year over year to $1.3 billion. Onboard and other revenues declined 8.9% year over year to $514 million.
Net cruise costs (NCC), excluding fuel, increased 2.3% on a constant currency basis, within the management’s expected range of 2% to 3%.
Total cruise operating expenses decreased approximately 3% year over year to $1.2 billion mainly due to a drop in onboard and other expenses, fuel costs and other operating expenses. These were partly offset by increased commissions, transportation and other costs, increased payroll expenses and rise in food expenses.
Full Year 2014 Results
Revenues rose 1.4% year over year to $8.1 billion in 2014.
Earnings per share were $3.39 for 2014, up 39% year over year.
First-Quarter 2015 Guidance
The company expects adjusted earnings per share in the range of 10 to 15 cents per share in the first quarter, down year over year. However, the Zacks Consensus Estimate stands substantially higher at 43 cents. We believe the company’s earnings will be under pressure due to the lower revenues from its Caribbean business.
Constant-currency net yields are expected to be down approximately 1.5% to 2%, mainly due to promotional environment in the Caribbean region and a shift of holiday sailings from the first quarter of each year to the fourth. Net cruise costs excluding fuel are expected to increase in the range of 2% to 3%.
Revenues are expected to be under pressure, due to challenging environment in the Caribbean.
2015 Guidance
The company continues to experience highly competitive Caribbean pricing, but pricing is expected to be up in the range of low single-digits for the remainder of 2015. The company expects yield to increase in the range of 2.5% to 4.5% on a constant-currency basis for 2015.
NCC excluding fuel, on a constant-currency basis, is expected to be up 1% or slightly higher.
Adjusted EPS is expected in the range of $4.65 to $4.85 per share, slightly higher than the previous guidance of $4.55. The company noted that since October, last year, the fall in the price of oil has had a positive impact of 59 cents per share and the strengthening of the U.S. dollar has had a negative impact of 54 cents per share. The Zacks Consensus Estimate for 2015 stands at $4.83 per share.
Royal Caribbean’s Double-Double Program (announced during the second-quarter earnings call) is expected to result in increased cost control, and projects earnings per share in 2015 to increase 40% year over year.
Bookings
The company’s bookings over the past three months have been higher than prior-year levels, and the company is experiencing a good, but typical Wave season. Load factors were higher from the year-ago quarter.
Our Take
Strong booking trends are indicative of strong growth, going forward. However, their impact is expected to be tempered by higher cruise costs. Moreover, the impact of Ebola cannot be ignored with Royal Caribbean being one of the largest players in the travel industry.
Royal Caribbean currently has a Zacks Rank #2 (Buy). Some favorably-ranked stocks in the same industry include Norwegian Cruise Line Holdings Ltd. (NCLH), Vail Resorts Inc. (MTN) and Carnival Corporation (CCL). All the stocks have the same Zacks Rank as Royal Caribbean.
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