Royal Caribbean Cruises Ltd.
) adjusted second-quarter 2013 earnings of 23 cents per share
surpassed the Zacks Consensus Estimate of 10 cents as well as the
year-ago level of 3 cents.
Earnings in the quarter were also significantly higher than
the management's guidance range of 10 cents -15 cents per share.
The company's efficient cost controlling measures and
year-over-year improvement in revenue drove the earnings during
Total revenue in the quarter increased 3.4% year over year to
$1.88 billion, but fell short of the Zacks Consensus Estimate of
$1.89 billion by 0.6%. Higher net yields and increased Onboard
and other revenues backed the year-over-year rise in top line
during the quarter.
Net yields increased 2.8% year over year on a
constant-currency basis. Higher onboard spending and better
pricing drove the net yields during the quarter.
With the revival of the North American business, the company's
onboard and other revenues increased 5.6% year over year to
$516.1 million. Royal Caribbean has taken a series of
revitalization initiatives to improve its onboard revenues which
has already started to pay off.
However, the company's occupancy rate decreased 110 basis
points (bps) to 103.0% in the second quarter. In the first half
of 2013, Royal Caribbean faced bad publicity following the fire
at its Grandeur of the Seas ship in May 2013. This incident has
also led to a decline in the company's booking pattern.
Net cruise costs (NCC), excluding fuel increased 2.3% on a
constant-currency basis which was much lower than the year-ago
level of 8.3% and the company's guidance of 3%. Royal Caribbean's
initiatives to boost profit and cost effective efforts have
helped reduce the cruise costs offsetting the adverse impact of
the Grandeur fire. NCC, excluding fuel cost and impact of
Grandeur fire, was 1.5% during the quarter.
Total cruise operating expenses increased 2.1% year over year
to $1.32 billion mainly due to a 7.4% rise in onboard and other
expenses and 3% increase in food expenses, offset by 2.3% decline
in fuel costs.
For the third quarter of 2013, Royal Caribbean expects its
earnings to range between $1.60 and $1.70 per share (including
the Grandeur fire effect). With the rise in onboard revenues, net
yields are expected to increase 1%-2% in constant-currency basis
in the third quarter. Ticket yields are projected to be flat to
Excluding fuel expenses, NCC is also estimated to increase 4%
in constant currency. Royal Caribbean is expected to incur higher
costs in the third quarter due to its marketing activities and
culinary improvement program. Fuel costs are estimated to be $219
million per metric ton.
Full-Year 2013 Outlook Lowered
Royal Caribbean has reduced its earnings per share guidance
for 2013 on a reported basis. Management expects earnings in the
range of $2.20-$2.30, down from the previous estimate of
The company has initiated a new profitability program for
boosting its margin and return on invested capital. For this
reason, Royal Caribbean is expected to face a one-time cost which
in turn will adversely impact earnings.
At constant currency, net revenue yield is expected to
increase 2%-3% down from 2%-4%. The company is facing strict
competitive pricing environment in the Caribbean for the past few
quarters. Moreover, the geo-political conflict between Japan and
China regarding the disputed islands in East China Sea will
affect the company's itineraries and yields. Considering these
factors, the company has also reduced its ticket revenues
guidance by 90 bps for the second half of 2013.
Royal Caribbean expects the yield to be low for Asia in 2013
due to geopolitical concerns in the region. Yields are expected
to be high in Europe and South America. In 2013, net ticket
yields will be up in mid-single digits in Europe. Royal Caribbean
expects its booking pattern and pricing to improve as the year
progresses and to be strong in the first quarter of 2014. The
U.S. market is showing healthy signs in terms of bookings.
In constant currency, NCC excluding fuel costs is projected to
increase 1%-2%, down from 2%-3%. Royal Caribbean continues to
gain from its cost saving efforts.
The company has reduced its fuel expenses guidance to $923
million per metric ton down from $928 million, owing to the
company's energy saving measures.
Following the implementation of the company's profitability
improvement program, the company's yield is expected to be high
and cost to be flat in 2014.
Although this Zacks Rank #4 (Sell) company has succeeded to
record higher earnings growth with its cost containment efforts,
it will take time to completely recover from the effect of the
Grandeur fire accident. Moreover, higher costs due to deployment
changes and several marketing activities remain major causes of
concern. In addition to these, China-Japan conflict continues to
bother the company.
Another cruise operator,
) is recovering at a modest pace from the Costa disaster last
January; as it faces one accident after another. Even if
Carnival's second-quarter fiscal 2013 earnings were ahead of the
Zacks Consensus Estimate it was below the year-ago quarter's
earnings. Lower revenues combined with higher cruise costs were
responsible for the year-over-year decline in earnings.
Some other stocks in the entertainment industry that are
expected to perform well include
Cedar Fair, L.P.
Ambassadors Group Inc.
). While Cedar Fair carries a Zacks Rank #1 (Strong Buy),
Ambassadors holds Zacks Rank #2 (Buy).
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