Royal Caribbean Beats - Analyst Blog

Royal Caribbean Cruises Ltd. (RCL), the world's second-largest cruise operator reported fourth-quarter 2010 earnings of 20 cents per share, well ahead of the Zacks Consensus Estimate of 12 cents -  a strong improvement from the year-earlier quarter's earnings of 2 cents.

The quarter's earnings also inched past management's guidance range of 8 cents to 12 cents per share. However, bad weather conditions and unfavorable currency impacted earnings by 3 cents per share.

The fiscal 2010 earnings were $2.51 which surpassed the Zacks Consensus Estimate of $2.45 and also 75 cents posted in 2009. Strong results came on the back of an improvement in close-in bookings and strict cost control.

Quarter Highlights

Total revenue in the quarter increased 10.5% year over year to $1.6 billion. The prominent year-over-year increase in revenue was driven by a rise in capacity and net yield.

Net yield upped 3.2% year over year, wiping out adverse effects from the ongoing economic uncertainty. The rise in yield was driven by an 11.4% improvement in net ticket revenue and moderate increase in on-board revenue.

Net yields at Royal Caribbean were up 4.2% on a constant currency basis, the upside was partially offset by adverse weather conditions. Occupancy rate also rose to 103.1% from 100.8% in the prior-year quarter.

Total cruise operating expenses grew 6.7% year over year to $1.1 billion in the fourth quarter. Net cruise costs per passenger including fuel were flat and jumped 1.7% year over year excluding fuel.  

Fiscal Year Highlights

Total revenue for 2010 rose 15% year over year to $6.8 billion. Net yield jumped 4.2% year over year and 4.7% on a constant currency basis. Occupancy rate also rose to 104.3% from 102.5% in prior-year quarter.

Net cruise costs per passenger excluding fuel plunged 1.6% year over year for the third consecutive year. Net cruise costs including fuel dropped 1.8%.

Financials

At the end of 2010, the company had total assets worth $19.7 billion versus $18.2 billion at the end of 2009. Royal Caribbean's net debt was 52.4% of capital compared with 52.0% as of December 31, 2009.

As of December 31, 2010, Royal Caribbean's net cash from operating activities was $1.6 billion versus $844.9 million as of December 31, 2009.

The company projects capital expenditure of $1.0 billion for 2011 and 2012 and $350 million for 2013.

Outlook

For the first quarter, Royal Caribbean expects EPS to range between 10 cents to 15 cents, below the Zacks Consensus Estimate of 25 cents. Net revenue yields are expected to increase from 2% to 3% (at constant currency to be up 1% to 2%).

Including fuel expenses, net cruise costs are expected to be up 1% (same at constant currency). Fuel costs are expected to be $168 million in the upcoming quarter.

For full-year 2011, management expects EPS in the range of $3.25 to $3.45. Net revenue yield is expected to be up 4%–6% (at constant currency to raise 4%-5%). Net cruise cost including fuel is projected to spike 2% (up 1% to 2% at constant currency). Fuel expenses for 2011 are expected to be $705 million per metric ton.

Our Take

Though the company has reported better-than-expected results, the outlook provided by the company was below expectations. Hence, we expect estimates to go down in the coming days.

We remain positive on the stock based on a host of factors including strong booking momentum, improvement in net yield, efficient expense control especially fuel conservation efforts, extraordinary performance of new ships, strong demand for wave-season and the slowdown in industry capacity.

Additionally, management continues to remain focused on cash flow generation as the company has only one ship delivery in 2011. Management stated that the company will de-lever in the coming years. Royal Caribbean currently retains the Zacks #3 Rank, which translates into a short-term Neutral rating.

 
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