Royal Caribbean 1st-Quarter Profit Up 62%, Free of Bad Publicity

   By Joan E. Solsman 
 

Royal Caribbean Cruises Ltd. (RCL) ship upgrades and mending demand in Europe helped it to a better-than-expected "wave season" quarter, reporting 62% higher first-quarter earnings.

However, the cruise operator's thawing worries failed to warm its downbeat financial outlook for the year, which it held steady while predicting earnings in the current quarter would be below expectations.

After an onslaught of negative publicity for the cruise industry, the market focused on the fact Royal Caribbean's business was barely jarred. Shares were up 4.9% at $35.94 premarket. Through the prior day's close, they were up a fraction year to date, which is weak compared to the wider market but outperforms bigger rival Carnival Corp. (CCL), which as been plagued by multiple mechanical snafus.

Thursday, Chairman and Chief Executive Richard Fain said ticket revenues were better than expected and onboard spending increased noticeably, which he credited to Royal Caribbean's ongoing project updating older ships with popular features of newer ones. Though costs were lower than the company anticipated, the main factor was timing.

While bookings in North American remained strong, Royal Caribbean wasn't immune to the high-profile missteps by its bigger rival Carnival. It noted "a modest disruption to Caribbean demand, which the company attributes to adverse industry media coverage."

But demand from European-sourced guests--long an area of weakness--strengthened in early February and the company expects pricing improvement from the region for the year.

Net yields--a key industry metric measuring revenue per available cruise day--rose 3.6% excluding currency effects, better than the 2% to 3% growth predicted in February.

The quarter coincides with "wave season," the cruise industry term for the start of each calendar year when most customers plan and book their voyages. Both Royal Caribbean and Carnival were wary early in the season, noting weakness in areas like Southern Europe because of austerity measures, economic pressure and the lingering skittishness about cruising after a deadly ship crash off the Italian coast last year.

Since that early peek into how the bookings were faring, Carnival's outlook has grown more wan, plagued with multiple mechanical flubs including the high-profile stranding of its powerless Triumph ship in the Gulf of Mexico. Analysts have noted the bad publicity has forced Carnival to reduce prices, but the fallout has appeared to be limited to Carnival's own line and not that of competitors.

Royal Caribbean, which operates its namesake line as well as Celebrity and Pullmantur cruises, posted a profit of $76.2 million, or 35 cents a share, from $47 million, or 21 cents a share, a year earlier. In February, Royal Caribbean forecasted 10 cents to 20 cents a share, below analysts' estimates at the time.

Revenue increased 4.2% to $1.91 billion. The analyst consensus was $1.9 billion.

In the second quarter, Royal Caribbean predicted 10 to 15 cents a share in profit, while analysts surveyed by Thomson Reuters were expecting 17 cents.

Write to Joan E. Solsman at [e-mail]

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