Royal Caribbean Beats on Earnings, Ups View - Analyst Blog

By Zacks Equity Research,

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Share price of Royal Caribbean Cruises Ltd. ( RCL ) increased 1.9% to $48.04 on Jan 27, 2014 after it posted strong fourth quarter 2013 results, beating the Zacks Consensus Estimate for both revenues and earnings.

Adjusted earnings of 23 cents per share beat the Zacks Consensus Estimate of 18 cents by 27.7% and increased 130.0% year over year. It was also above management's guidance range of 15 cents to 20 cents per share. Earnings in the quarter received a boost from the company's higher top line.

Total revenue in the quarter increased 2.7% year over year to $1.854 billion and was ahead of the Zacks Consensus Estimate of $1.849 billion by 0.27%. Increased onboard and other revenues and solid close-in demand in Europe and Asia backed the top line.

Quarter Highlights

On a constant currency basis, net yields increased 3.8% year over year, better than the expected range of 2.0% to 3.0%. The strong yields were driven by continued strength in European and Asian sailings and solid onboard revenues, partially offset by slight decline in Caribbean yield.

Passenger ticket revenues were up 1.18% year over year to $1.3 billion. Onboard and other revenues increased 6.2% year over year to $564.0 million driven by the ship revitalization program, packaging initiatives, as well as shore excursion enhancements. During the reported quarter, onboard revenue yields were up 8.0%.

The company's occupancy rate increased 150 basis points year over year to 103.3% in the fourth quarter. Net cruise costs (NCC), excluding fuel, increased 1.8% on a constant currency basis, which was lower than 3.9% increase in the prior quarter and within the company's guidance range of 1.0% to 2.0%.

Total cruise operating expenses increased approximately 2.0% year over year to $1.28 billion mainly due to a 2.9% rise in onboard and other expenses, 4.0% increase in other operating costs, 2.7% rise in food expenses, partially offset by 0.4% decline in payroll and related costs.

Booking Environment

Booking activity during the fourth quarter was consistent with historical levels. On a year over year basis, booked load factors are flat for the first quarter of 2014, but up for the second, third and fourth quarter of 2014. While the Caribbean region is facing pricing pressure, load factors and pricing are up significantly in Europe and Asia.

Full-Year 2013 Highlights

Adjusted earnings per share for the full-year were $2.40 per share, which beat the Zacks Consensus Estimate by 1.7% and were up 21.8% year over year. Also, it was well above the management's guidance range of $2.30 to $2.35 per share.

Total revenue grew 3.5% to approximately $7.959 billion, which surpassed the Zacks Consensus Estimate of $7.919 billion by 0.50%.

Full-Year 2014 Guidance Raised

The company raised its earnings per share guidance to a range of $3.20 to $3.40 from previous expectation of $3.06 per share. Also, the new range is far ahead of the Zacks Consensus Estimate of $3.11.

On a constant-currency basis, the company expects net yields to increase in the range of 2.0% to 3.0% in 2014. Despite, inflationary pressure, rising insurance costs and continued investments in product and marketing, net cruise costs excluding fuel are expected to be flat to slightly down in 2014.

First Quarter 2014 Guidance

The company expects earnings per share in the range of 20 cents to 30 cents per share in first quarter 2014, which fell short of the Zacks Consensus Estimate of 44 cents. The first quarter of 2014 is expected to be difficult compared to the prior-year quarter, which saw the highest yields in more than a decade. The negative publicity and its effects on Caribbean sailings were felt only after the first quarter of 2013.

The company expects net yields on a constant currency basis to be flat during the first quarter of 2014. However, for the second, third and fourth quarters, the company expects higher yields due to easier comparisons and strong performance in Europe and Asia itineraries.

Our Take

Of late, Royal Caribbean has been facing negative publicity following a string of mishaps. However, a 130.0% year over year increase in quarterly earnings driven by higher prices in Europe and Asia demonstrates resurgence in demand. Given the company's relatively stable booking patterns and fuel conservation initiatives, we remain optimistic on this cruise operator.

Royal Caribbean holds a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the leisure and recreational services sector include Carmike Cinemas Inc. ( CKEC ), Carnival Corporation ( CCL ) and ClubCorp Holdings, Inc. ( MYCC ). All these stocks carry a Zacks Rank #2 (Buy).

CARNIVAL CORP (CCL): Free Stock Analysis Report

CARMIKE CINEMA (CKEC): Free Stock Analysis Report

CLUBCORP HLDGS (MYCC): Free Stock Analysis Report

ROYAL CARIBBEAN (RCL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: CCL , CKEC , MYCC , RCL

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