We remain Neutral on cruise company
Royal Caribbean Cruises Ltd.
). While we have a favorable view of the company's second quarter
results, its improving booking momentum and profitability
initiatives; near-term geopolitical concerns in Asia and adverse
currency translation keep us on the sidelines at the current
Why the Reiteration?
On Jul 25, 2013, Royal Caribbean's adjusted second-quarter 2013
earnings of 23 cents per share beat the Zacks Consensus Estimate
of 10 cents as well as the year-ago figure of 3 cents. Earnings
in the quarter were also significantly higher than management's
guidance range of 10-15 cents per share.
Quarterly earnings increased on the back of efficient cost
controlling measures and year-over-year improvement in revenues.
Revenues grew 3.4% year over year mainly bolstered by higher net
yields and increased Onboard and other revenues.
The company's booking momentum has been improving since the
grounding of its close competitor
) ship in Italy in Jan 2012, which affected passenger confidence,
especially in Europe. Overall bookings for the rest of 2013
across all itineraries remain stable, with higher year-over-year
load factors and pricing. Caribbean yields are anticipated to
finish year 2013 on a strong note.
The company is in the initial stages of its profitability
improvement initiatives, which is aimed at generating long-term
cost savings. In fact, its profitability initiatives improved its
earnings per share by 5 cents in the second quarter.
Despite these enthusiastic facts, some concerns prevent us from
being too optimistic on the stock. The conflict between Japan and
China over disputed islands in East China Sea continues to affect
the company's itineraries as well as demand profile. While the
Asian market continues to expand notwithstanding this
geopolitical issue, management expects relatively lower revenue
yields owing to this disruption. In fact, in the second quarter
of 2013, management reduced its ticket revenues guidance by 90
basis points for the second half of 2013.
Royal Caribbean generates just under 50% of its revenues from
customers outside the U.S. where a majority pay in local
currency. Hence, the current strength of the US dollar remains
another concern for the company.
Royal Caribbean currently carries a Zacks Rank #3 (Hold). Other
players in the leisure and recreational industry, which look
attractive at current levels, include
Cedar Fair L. P.
Rick's Cabaret International Inc.
) both carrying a Zacks Rank #2 (Buy).
CARNIVAL CORP (CCL): Free Stock Analysis
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ROYAL CARIBBEAN (RCL): Free Stock Analysis
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