Royal Caribbean Cruises Ltd. RCL posted robust second-quarter 2015 results with both earnings and revenues surpassing the respective Zacks Consensus Estimate.
Adjusted earnings of 84 cents per share comfortably beat the Zacks Consensus Estimate of 72 cents by 16.7%. Earnings were above management’s guidance of 70 cents.
Further, earnings increased 27.3% year over year, mainly due to higher revenues.
Total revenue increased 4% year over year to $2.06 billion due to higher onboard spending as well as passenger ticket revenues. Further, revenues beat the Zacks Consensus Estimate of $2.05 billion by 0.5%.
Quarter Highlights
On a constant currency basis, net yields increased 4.2% year over year. This was above the guidance of 3.5% increase. Strong close-in pricing on Caribbean sailings drove the better-than-anticipated performance.
Passenger ticket revenues were up approximately 3.6% year over year to $1.51 billion. Onboard and other revenues also increased 4.9% year over year to $550.9 million.
Net cruise costs (NCC), excluding fuel, increased 3.4% on a constant currency basis, better than management’s guidance due to the timing of the expenses
Total cruise operating expenses decreased approximately 1.1% year over year to $1.3 billion mainly due to a drop in onboard and other expenses and fuel costs, partly offset by increased other operating costs and higher commissions, transportation and other expenses.
Third-Quarter 2015 Guidance
Royal Caribbean expects adjusted earnings per share to be $2.70 in the third quarter, up year over year. However, the Zacks Consensus Estimate is pegged higher at $2.79.
Constant-currency net yields are expected to be up approximately 3.5–4%. NCC, excluding fuel, is expected to be down 1.5% to 1% on a constant-currency basis.
2015 Guidance
Royal Caribbean increased the adjusted EPS guidance for 2015 backed by the positive impact of currency and fuel rates. Adjusted EPS is now expected in the range of $4.65–$4.75, up from $4.45–$4.65. The Zacks Consensus Estimate for 2015 stands at $4.61.
Royal Caribbean’s Double-Double Program (announced during the second-quarter 2014 earnings call) is expected to result in increased cost control.
The company revised its guidance and now expects net yields to increase in the range of 2.9% to 3.9%, versus 2.5% to 4%, for 2015.
NCC, excluding fuel, on a constant-currency basis, is expected to be better than stable, compared with the prior guidance of flat to down 1%.
Bookings
Royal Caribbean’s bookings over the past three months have been higher than the prior-year levels. Load factors as well as APD were higher than the year-ago quarter. The softness in the Latin American sailings associated with the Pullmantur brand, is likely to be offset by a solid Caribbean booking environment.
Our Take
Solid booking trends are indicative of strong growth, going forward. Further, we are encouraged by the company’s strategy to grow beyond its familiar itineraries and capitalize on the opportunities presented by the fast-growing Asian cruise market. However, their impact is expected to be tempered by higher cruise costs.
Royal Caribbean currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Carnival Corp. CCL, Norwegian Cruise Line Holdings Ltd. NCLH and The Madison Square Garden Co. MSG. All these stocks carry a Zacks Rank #2 (Buy).
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