Royal Caribbean Cruises Ltd.
) posted dismal first quarter 2014 results with earnings and
revenue missing the Zacks Consensus Estimate and also declining
year over year. However, the company provided a positive outlook
for 2014 owing to strong booking trends and promotional
activities. It seems that the solid outlook made up for the weak
performance, thereby resulting in a meager decline of 0.38% in
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Adjusted earnings of 21 cents per share missed the Zacks
Consensus Estimate of 27 cents by 22.2% and went down 40.0% year
over year. The significant downside reflects cancellation or
shortening of six voyages during the first quarter, which is
known to be the strongest for cruise companies. This company's
cruises faced disruptions due to a collision that spilled
residual fuel oil in the Gulf of Galveston, shutting the Houston
Ship Channel. In one other incident, one of the company's cruises
had to return early to New Jersey as passengers fell ill onboard.
Earnings were toward the lower end of management's expectation of
20 cents to 30 cents per share. The company had already indicated
during its fourth quarter conference call that it would be
difficult to compare the results of first quarter 2014 with the
year-ago 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.
Meanwhile, these voyage disruptions acted as an extra headwind.
Adjusted earnings exclude some charges and costs tied to the sale
of its Pullmantur cruise line's non-core businesses.
Total revenue in the quarter decreased 1.3% year over year to
$1.89 billion and also missed Zacks Consensus Estimate of $1.90
billion by 0.73% owing to a decline in net yields.
On a constant currency basis, net yields decreased 0.3% year over
year due to lower passenger ticket revenue as a result of lower
boarding. Caribbean yields were down slightly while yields in
other itineraries were modestly up.
Passenger ticket revenues were down 3.3% year over year to $1.35
billion but were in-line with management's expectation. Onboard
and other revenues increased 4.2% year over year to $539.0
million due to a 3.4% increase in Onboard yields. This reflects
onboard revenue management initiatives as well as benefits
availed from fleet upgrades.
The company's occupancy rate inched down 40 basis points year
over year to 104.5% in the reported quarter. Net cruise costs
(NCC), excluding fuel, increased 1.3% on a constant currency
basis, which was lower than 1.8% increase in the last quarter and
the company's expectation of approximately 2.0% increase.
Total cruise operating expenses increased approximately 1.7% year
over year to $1.30 billion mainly due to 1.3% rise in onboard and
other expenses, 5.6% increase in other operating costs and 1.2%
rise in food expenses.
Booking volumes during the first quarter increased 16.0%. Over
the past 8 weeks, it was up more than 20.0%, much higher than
typical post-Wave periods.
Robust Bookings to Drive 2014, Outlook Up
The company raised its earnings guidance for 2014 and expects it
in the range of $3.25 to $3.45 per share compared to the previous
expectation of $3.20 to $3.40 per share. This comes in the wake
of a strong booking environment. The Zacks Consensus Estimate of
$3.33 per share lies within management's new guidance.
Despite pressures in Caribbean sailings, the company has a
positive outlook for the coming quarters on solid demand for
European and Chinese sailings. It expects double digit yield
improvements for both these itineraries in 2014.
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.
Second Quarter 2014 Guidance
The company expects earnings per share in the range of 45 cents
to 55 cents per share in second quarter 2014, much higher than 23
cents per share reported in the year-ago quarter.
The company expects net yields on a constant currency basis to
increase in the range of 1.5% to 2.5% in the second quarter of
2014. However, on a constant-currency basis, the company expects
net yields to decline in the range of 2.0% to 3.0% in 2014.
The cruise industry has just started recovering from negative
publicity after a series of mishaps, including virus outbreaks
and engine fires. However, this quarter again turned out to be
difficult for this cruise operator after the cancellation and
shortening of several voyages. Also, we cannot ignore the fact
that year-over-year comparisons were tough.
On the other hand, Miami-based cruise company
) reported better-than-expected first-quarter 2014 results
recently, beating the estimate on both counts.
Going forward, the company is expected to deliver strong results
driven by strong booking trends experienced by the company. Also,
efforts to tackle the volatility in fuel prices and profitability
initiatives like divestment of Pullmantur non-core businesses
should bode well for this Zacks Rank #2 (Buy) company, going
Some other stocks worth considering in the leisure and
recreational services sector include
Live Nation Entertainment, Inc.
SeaWorld Entertainment, Inc.
). Both these stocks carry a Zacks Rank #2.