Royal Caribbean Cruises Ltd.RCL posted mixed third-quarter 2015 results with earnings surpassing the Zacks Consensus Estimate but revenues missing the same. Further, the company raised the earnings guidance for 2015.
Adjusted earnings of $2.84 per share comfortably beat the Zacks Consensus Estimate of $2.70 by 5.2%. Earnings were also above management's guidance of $2.70. Adjusted earnings excludes the non-cash impairment charges related to Pullmantur.
Further, earnings increased 29.1% year over year, mainly backed by higher revenues.
Total revenue increased 5.6% year over year to $2.52 billion driven by higher onboard spending as well as passenger ticket revenues. However, revenues marginally missed the Zacks Consensus Estimate of $2.53 billion by 0.3%.
On a constant currency basis, net yields increased 5.1% year over year. This was above the guidance of 3.5-4% growth. Strong close-in Caribbean and European demand and solid performance in Asia more than offset the weakness in Latin America. Onboard Revenue Yield increased 10% mainly backed by strong retail and beverage sales and demand for VOOM - the fastest Internet at sea.
Passenger ticket revenues were up approximately 4.9% year over year to $1.87 billion. Onboard and other revenues also increased 7.8% from the year-ago quarter to $649.2 million.
Net cruise costs (NCC), excluding fuel, decreased 1.8% on a constant currency basis, better than management's guidance.
Total cruise operating expenses decreased roughly 2.8% year over year to $1.39 billion mainly due to a drop in onboard and other expenses, other operating costs and fuel costs. The decline was partly offset by increased payroll and related costs and higher commissions, transportation and other expenses.
Fourth-Quarter 2015 Guidance
Royal Caribbean expects adjusted earnings per share to be 90 cents in the fourth quarter, up year over year. The Zacks Consensus Estimate is pegged higher at 97 cents.
Constant-currency net yields are projected to be up 4.5-5%. NCC, excluding fuel, is likely to be down around 4% on a constant-currency basis.
Royal Caribbean increased the adjusted EPS guidance for 2015 backed by higher booking numbers and increased capacity in key markets. Adjusted EPS is now expected to be $4.80, up from $4.65-$4. The Zacks Consensus Estimate for 2015 stands at $4.72.
Royal Caribbean's Double-Double Program (announced during the second-quarter 2014 earnings call) is expected to increase cost control.
The company revised its guidance and now expects net yields to increase about 3.5%, as against the prior guidance of 2.9% to 3.9% growth.
NCC, excluding fuel, on a constant-currency basis, is expected to be flat to down 1%, compared with the prior guidance of better than stable.
The company is witnessing good early booking trends for 2016. Booked load factors and APDs are higher than the comparable period last year and the booking window has extended. The introduction of Harmony of the Seas in Europe next summer and Ovation of the Seas in China would add to bookings. The company expects solid yield and earnings growth in 2016.
Solid booking trends are indicative of strong growth, going forward. Further, we are encouraged by Royal Caribbean's strategy to grow beyond its familiar itineraries and capitalize on the opportunities presented by the fast-growing Asian cruise market. However, their impact is expected to be tempered by higher cruise costs.
Royal Caribbean currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Carnival plc CUK , Norwegian Cruise Line Holdings Ltd. NCLH and Diamond Resorts International, Inc. DRII . All these stocks sport a Zacks Rank #1 (Strong Buy).
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