2nd Quarter Earnings Rise for Royal Caribbean Cruises Ltd.

Oasis of the Seas, shown docked at Port Everglades, FL, is among the many ships in Royal Caribbean Cruises Ltd.'s multi-brand fleet. // Photo by Susan J. Young

For the second quarter 2016, Royal Caribbean Cruises Ltd.  (RCL) had adjusted earnings of $1.06 and $1.09, respectively, up over 25 percent from last year. That was better than financial analysts had expected. RCL also said the outperformance was driven by better than anticipated fuel costs.  

The company said continued strength for North American cruise products is helping offset weakness in the eastern Mediterranean and in ShanghaiIn 2016, the cruise industry's capacity in China is up nearly 100 percent from last year.

Net income was $229.9 million or $1.06 per share, versus $185.0 million, or $.84 per share in 2015. Net yields were up 1.1 percent and net cruise costs excluding fuel were up 1.9 percent -- those results were in line with the company's previous guidance to financial analysts.

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RCL said full-year 2016 earnings also are expected to be up 25 percent at a range of $6 to $6.10. While that's down $.20 from the midpoint of earlier guidance, the company said there is expected to be a full-year negative impact of $.27 related to fuel and currency factors; that includes the post-Brexit impact on the UK pound.  

The world's second largest cruise company, parent of Azamara Club Cruises, Celebrity Cruises and Royal Caribbean International, also said yields and costs for the year are also performing generally as expected.

The sale of 51 percent of the Pullmantur Group, which operates European-sourced cruises, was completed at the end of July, RCL reported. Since Pullmantur's yields and costs are lower than the fleet average, this change will increase RCL's yields and costs metrics for 2016.

Looking Ahead 

Financial analyst Robin Farley from UBS Investment Research told investors that RCL is, at this point, 93 percent-plus booked for fiscal year 2016, with both load factors and fares higher year over year for the next 12 months. 

For the third quarter, the cruise company said net yields are expected to rise about 2 percent. That's based on current fuel pricing, interest rates and currency exchange rate and other factors identified in this quarterly report. Third quarter adjusted earnings per share are expected to be approximately $3.10 per share. 

For the full year, net yields are expected to increase in the range of 4 percent to 4.5 percent, an increase from the company's previous guidance. Adjusted earnings per share are expected to be in the range of $6 to $6.10 per share, a $0.20 decrease from the mid-point of the company's previous guidance. 

"Our business remains strong and we continue to improve our return profile," said Richard Fain, RCL's chief executive officer. "This keeps us solidly on our path towards the Double-Double." That's a multi-year program of goals to improve adjusted EPS and return on invested capital.

The company said in its earnings release that "the company's booked position for the remainder of 2016 remains strong, similar to last year's record levels. Looking further ahead, the company's booked position for the next twelve months is also strong, up on both rate and volume, versus same time last year."

Net yields are expected to increase in the range of 4 percent to 4.5 percent. Again, that's driven primarily by the deconsolidation of the Pullmantur Group. 

"While there are always puts and takes in our key markets, our portfolio is performing as expected, our booked position remains strong, and our newbuilds are entering their markets to great fanfare," said Jason T. Liberty, RCL's chief financial officer. "These factors are driving another year of record earnings."

Farley said recent high-profile security issues (clearly referring to global terrorist incidents) have less of an impact on the third quarter earnings as so much of the capacity is already in the penalty period. Simply put, if clients cancel, and don't have travel insurance, they won't get their money back from the line. 

"RCL [is] generally seeing a more rapid bounce-back in bookings after those events," Farley also said. She expect the line's European capacity to be down -5% for next year, with Caribbean up +4% industrywide, as cruise lines cut itineraries from the eastern Mediterranean. 

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