On May 9, 2014, we issued an updated research report on Royal Caribbean Cruises Ltd. ( RCL ). Though the company reported dismal first quarter 2014 results on Apr 24 with earnings and revenue missing the Zacks Consensus Estimate, it provided a positive outlook for 2014 owing to strong booking trends and promotional activities.
This leading cruise operator delivered adjusted earnings of 21 cents per share which were 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 season for cruise companies.
The 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 due to passengers falling ill onboard.
Total revenue also decreased 1.3% year over year to $1.89 billion and also missed the Zacks Consensus Estimate of $1.90 billion by 0.73% owing to a decline in net yields and currency fluctuation. 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.
Despite dismal results, the company increased its financial outlook for 2014 driven by a strong booking environment. Booking volumes during the first quarter increased 16.0%. 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.
Estimates for this Zacks Rank #2 (Buy) company mostly moved upwards in response to the strong outlook provided by the company.
Also, the company's revitalization efforts that call for additional capacity and other upgrades paved the way for the achievement of its profitability goals. As a result of these efforts, the company has succeeded in generating improved onboard revenues. Over the next several years, the company plans to continue to revitalize its cruises, thereby generating revenues.
Moreover, the company is pursuing profitability improvement initiatives aimed at generating long-term cost savings. The company also intends to gain scale advantage by expanding its international footprint. Driven by these factors, the company expects profitability in 2014 to increase from the current level.
Other players in the cruise industry, which look attractive at current levels, include Regal Entertainment Group ( RGC ) and Speedway Motorsports Inc. ( TRK ). Investors can also consider Wynn Resorts Ltd. ( WYNN ), a stock from the leisure and recreation industry. All these stocks carry a Zacks Rank #2 (Buy).