Royal Caribbean Cruises Ltd.
) adjusted third-quarter 2013 earnings of $1.71 per share beat
the Zacks Consensus Estimate of $1.64 by 4.3% as well as the
year-ago level of $1.68 by 1.8%. It was also above management's
guidance range of $1.60-$1.70. Earnings in the quarter received a
boost from the company's higher top line.
Total revenue in the quarter increased 3.8% year over year to
$2.31 billion ahead of the Zacks Consensus Estimate of $2.28
billion by 1.3%. Increased onboard and other revenues and solid
close-in demand in Europe and Asia backed the top-line
On a constant currency basis, net yields increased 2.6% year
over year. Yields in the quarter was driven by increased onboard
spending, higher ticket revenue gain, especially in Europe, and
solid close-in business in China offsetting the adverse impact of
unscheduled drydock of Celebrity Millennium cruise.
With the improvement in the company's U.S. business, onboard
and other revenues increased 8.2% year over year to $639.7
million. Royal Caribbean's series of revitalization initiatives
also aided onboard revenues to grow further. In the third
quarter, onboard revenue yields were up 7.0%.
However, the company's occupancy rate remained flat year over
year at 107.3% in the third quarter. Royal Caribbean is
witnessing higher booking trend across the U.S., Australia,
Alaska and Europe. Even if the rising geo-political concern
between Japan and China continues to affect the company's
itineraries as well as demand profile in the Chinese region, the
demand is higher in Asia. The company is facing strict
competitive pricing environment in the Caribbean for the past few
Net cruise costs (NCC), excluding fuel, increased 3.9% on a
constant currency basis, which was higher than the year-ago level
of 2.0% but lower than the company's guidance of 4%. The rise in
the cost was mostly due to the adverse impact of Millennium
drydock. Excluding the impact, NCC was up 2.8% during the
Total cruise operating expenses increased 5.1% year over year
to $1.42 billion mainly due to a 7.2% rise in onboard and other
expenses, 7.6% increase in other operating costs, 7% increment in
food expenses and 6.1% surge in payroll and related costs.
For the fourth quarter of 2013, Royal Caribbean expects its
earnings to range between 15 cents and 20 cents per share. With
the rise in bookings in almost all itineraries, net yields are
expected to increase 2%-3% on a constant currency basis in the
Excluding fuel expenses, NCC is also estimated to increase
1%-2% in constant currency. Royal Caribbean is expected to incur
higher costs in the third quarter due to its restructuring
activities. Fuel costs are estimated to be $230 million per
Full-Year 2013 Outlook Increased
Royal Caribbean has raised its adjusted earnings per share
guidance for 2013 based on improved booking trends, higher yield
outlook and costs saving efforts. Management expects earnings per
share in the range of $2.30-$2.35, up from the previous estimate
At constant currency, net revenue yield is expected to
increase 3%, up from the previously guided range of 2%-3%. The
company's initiatives such as revitalizing program, marketing
efforts and improved guest services are expected to drive yield.
Ticket revenue yield is expected to increase 2% while onboard
revenue yield will be 7% in 2013.
The company has retained its cost outlook. In constant
currency, NCC excluding fuel costs is projected to increase
1%-2%. Royal Caribbean continues to gain from its cost saving
The company has reduced its fuel expenses guidance to $920
million per metric ton from $923 million, owing to the company's
energy saving measures.
Following the implementation of the profitability improvement
program, the company expects its earnings to be $3.06 per share
in 2014. Gaining from strong booking pattern, the company's yield
is expected to be high while cost is expected to be low in 2014
thanks to costs saving efforts.
Royal Caribbean expects the yield to be strong for Asia in
2014 despite the geo-political concerns in China. Yields are
expected to be high in Europe and Alaska. However, yields in the
Caribbean region will be flat to down in 2014.
Given the company's relatively stabilized booking patterns,
cost containment efforts and fuel conservation initiatives, we
remain optimistic on the world's second-largest cruise operator.
An increased guidance for 2013 is also positive for the
However, sluggish recovery in debt-ridden Europe and the
China-Japan conflict will likely hamper some of the itineraries
of the company in the near term.
Royal Caribbean holds a Zacks Rank #3 (Hold). Other stocks in
the leisure and recreational services sector that are performing
SeaWorld Entertainment, Inc.
Cedar Fair, L.P.
Carmike Cinemas Inc.
). While SeaWorld Entertainment and Cedar Fair carry a Zacks Rank
#1 (Strong Buy), Carmike Cinemas holds a Zacks Rank #2 (Buy).
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