Royal Caribbean Cruises Ltd. (RCL) reported first-quarter 2011 adjusted earnings of 31 cents per share, breezing past the Zacks Consensus Estimate of 13 cents and showing a strong improvement from the year-earlier quarter’s earnings of one penny. On a GAAP basis, Royal Caribbean’s first-quarter earnings were 42 cents a share versus 40 cents recorded in the comparable quarter last year.
The quarter’s earnings also surpassed management’s guidance range of 10 cents to 15 cents per share. Strong results came on the back improved bookings and strict cost control.
Quarter Highlights
Total revenue in the quarter increased 13.3% year over year to $1,672 million, which lagged the Zacks Consensus Estimate of $1,676 million. The prominent year-over-year increase in revenue was driven by a rise in capacity and net yield.
Keeping in sync with the economic revival, net yield upped 4.0% year over year. The rise in yield was driven by a 13.3% improvement in net ticket revenue and a 10.5% increase in on-board revenue. Net yields at Royal Caribbean were up 2.8% on a constant currency basis. Occupancy rate also rose to 104.3% from 103.1% in the prior-year quarter.
Total cruise operating expenses grew 7.4% year over year to $1.1 billion. Net cruise costs per passenger rose 0.2% including fuel and 0.8% excluding fuel.
Financials
At quarter end, the company had total assets worth $19.8 billion versus $19.7 billion at the end of 2010. Royal Caribbean’s net debt was 50.1% of capital compared with 52.4% as of December 31, 2010.
Royal Caribbean’s net cash from operating activities was $285.4 million in the first quarter versus $412.9 million in the year-earlier quarter.
Outlook
For the second quarter, Royal Caribbean expects the bottom line to range between 40 cents to 45 cents, below the Zacks Consensus Estimate of 56 cents. Net revenue yields are expected to increase 5% (up 1% to 2% at constant currency).
Excluding fuel expenses, net cruise costs are estimated to rise 4–5% (up 2% at constant currency) in the upcoming quarter. Fuel costs are expected to be $189 million.
For full-year 2011, management expects earnings per share (EPS) in the range of $3.10 to $3.30 (earlier $3.25 to $3.45). Net revenue yield is expected to be up 5–7% (up 3–5% at constant currency). Net cruise cost excluding fuel is projected to spike 4–5% (up 2% to 3% at constant currency). Fuel expenses for 2011 are expected to be $770 million per metric ton.
Our Take
Though Royal Caribbean has bettered the Zacks Consensus Estimate on the bottom line, the outlook provided by the company was below expectations. Moreover, the company cut its full-year EPS guidance range due to geopolitical risks in North Africa and the earthquake in Japan. These disturbances compelled Royal Caribbean to modify some of its sailings, which adversely affected both demand and yield. The upcoming quarter is expected to be affected the most by the ongoing political unrest. 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 Caribbean and Alaskan itineraries, increased tour activities from the company’s Spanish brand, Pullmantur, efficient expense control, especially 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. We are also maintaining our long-term Neutral recommendation on the stock.
The company’s biggest competitor, Carnival Corporation (CCL) reported its first quarter earnings of 19 cents, which came in line with the Zacks Consensus Estimate but was below the year-ago quarter’s earnings of 22 cents.
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