Despite May fire, Royal Caribbean posts second-quarter profit

Royal Caribbean Cruises said Thursday that a fire on one of its ships, weak pricing in the Caribbean and itinerary disruptions in Asia all affected earnings in the second quarter, but the world’s second-largest cruise company still reported profits of nearly $25 million.

The May fire aboard Royal Caribbean International’s Grandeur of the Seas came as the industry was still recovering from harsh scrutiny following the disabling fire aboard the Carnival Triumph in February. No one was injured in either case, and Grandeur of the Seas did not lose power due to the blaze.

But the fire, which happened as the Baltimore-based ship was sailing near the cruise line’s private island in the Bahamas, forced the cancellation of several sailings and cost the company an estimated 10 cents per share. Half of that impact was felt during the second quarter.

“Everybody knows that in the first half of 2013, the industry suffered under the unrelenting pressure of a deluge of negative publicity,” said Richard Fain, chairman and chief executive officer of Royal Caribbean Cruises, in a call with analysts. “That pressure has clearly hurt our bookings, and unfortunately to a greater extent than we originally understood.”

The cruise line also took a non-cash charge of 7 cents per share from underestimating reward liability from the company’s credit card.

Still, the quarter that ended June 30 was better than the same time in 2012, when the Miami-based cruise operator posted a net loss of $3.7 million.

Executives said strong onboard spending by U.S. customers helped revenues reach $1.88 billion, a more than 3 percent increase from last year. And the cruise company, which has launched a “profitability improvement program,” was able to keep costs in check. Net yields, or revenue per capacity day, increased 2.8 percent on a constant currency basis.

Still concerning the line is a territorial dispute that has forced Royal Caribbean to cancel calls to ports in Japan, which has resulted in 30 modified sailings. Competitive pressure in the Caribbean is also keeping prices low, but executives said pricing in the region is continuing to improve.

For the full year, Royal Caribbean is forecasting earnings per share of $2.20-$2.30, lower than before the Grandeur fire. The forecast for yield growth was also lowered. But the company said prices and bookings are higher for the rest of the year than at the same time in 2012.

“While we’re frustrated by the hurdles we’ve had to overcome in recent years, we feel very good about our condition as we emerge from these clouds,” Fain said.

Morningstar equity analyst Jaime Katz said in an investment note that the company’s longer-term outlook “appears promising.”

“In our opinion this indicates that the psychological effect of media coverage from earlier in the year is largely behind us,” she wrote.

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