Royal Caribbean Cruises Ltd. (RCL) has reported fourth-quarter 2011 earnings of 17 cents per share, surpassing the Zacks Consensus Estimate of 14 cents. Earnings showed a modest improvement from 15 cents per share posted the year earlier. For full-fiscal 2011, earnings were $2.77 per share versus $2.37 in 2010.
Quarter Highlights
Total revenue in the quarter increased 10.7% year over year to $1,775.4 million. In full-fiscal 2011, total revenue was up 11.7% year over year at $7.54 billion.
Net yield upped 3.5% year over year (3.2% on a constant currency basis) thanks to strong performance in the Caribbean where ticket yields improved by double digits, as well as in Asia, partially offset by underperformance in Europe.
The rise in yield was driven by a 10.7% improvement in net ticket revenue and a 10.6% increase in on-board revenue. The occupancy rate fell marginally to 103.0% from 103.1% in the prior-year quarter.
Total cruise operating expenses grew 13.0% year over year to $1,250.9 billion. Net cruise costs per passenger rose 3.7% excluding fuel (up 3.6% on a constant-currency basis).
Financials
At quarter end, the company had total assets worth $19.8 billion versus $19.7 billion at year-end 2010. The company retired outstanding debt by over $650 million during 2011.
Guidance
For the first quarter of fiscal 2012, Royal Caribbean expects the bottom line to range between 10 cents and 20 cents. Net revenue yield is expected to increase 4-6% (5-7% at constant currency). Excluding fuel expenses, net cruise costs are estimated to increase 5-6% (up 6-7% at constant currency) in the upcoming quarter. Fuel costs are expected to be $224 million.
For full-year 2012, management now expects earnings per share in the range of $1.90 to $2.30. Net revenue yield is expected to increase 0% to 4% (up 1%-5% at constant currency). Net cruise cost excluding fuel is projected to increase 3-4% (up 4% to 5% at constant currency). Fuel expenses are expected to be $889 million per metric ton.
Our Take
We are a bit doubtful about the sector in the near term as its close competitor Carnival Corp.‘s (CCL) ship Costa Concordia recently ran aground at Italy’s west coast. The disaster hit the industry in the wake of the wave season between January and March. The recent tragedy shattered passengers’ confidence and result in subdued bookings. Royal Caribbean’s overall booking volumes in North America already declined by low to mid-teen percentages year over year. In Europe, where the disaster took place, the cut in bookings has been steeper. Business in APMEA was also down slightly.
However, as these threats are short term in nature, we remain positive on the stock of the world’s second-largest cruise operator over the long term based on a host of factors including strong booking momentum at year-over-year higher prices prior to the tragedy, especially fuel conservation efforts, and the slowdown in industry capacity.
Royal Caribbean currently retains the Zacks #4 Rank, which translates into a short-term Sell rating. However, we are maintaining our long-term Neutral recommendation on the stock.
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