Royal Caribbean posts unexpectedly strong third-quarter results

The world’s second-largest cruise company released better-than-expected earnings for the third quarter Thursday, offering some hope for an industry that has struggled against years of difficult headwinds.

Miami-based Royal Caribbean Cruises Ltd. raised its full-year earnings forecast due to greater demand in Europe — which has been a problem area in the past — and said bookings for 2014 were trending higher.

Analysts seemed pleasantly surprised by the results, and Wall Street responded: Shares of Royal Caribbean closed at $42.35, up 6.5 percent.

“We thought cruise companies would want to hedge on performance and keep quiet until a more complete picture of next year emerged, but clearly Royal has gained some traction (in our opinion, at the expense of some of its competitors) and the management team was excited to share the stabilization of demand,” Morningstar equity analyst Jaime Katz wrote in a note to investors.

Profits fell slightly to $365.7 million, or $1.65 per share, in the quarter from $367.8 million, or $1.68 per share, a year earlier. Adjusted earnings, which did not include $12.2 million in restructuring costs, were $1.71 per share, higher than analyst estimates that averaged $1.65.

Total revenue rose 3.5 percent to $2.31 billion, beating analysts’ average estimate of $2.26 billion due to last-minute bookings in Europe and Asia and increased spending aboard its ships.

The company said it expected net yields, a measure of ticket sales and money spent onboard, to rise about 3 percent in 2013. Net yields rose 2.6 percent in the third quarter ended Sept. 30, excluding currency fluctuations. That was fueled by a 7 percent increase in onboard revenue yields, which prompted one analyst to say: “I just want to know what you’re selling on those ships.”

The cruise industry has been rocked by a series of incidents dating back to January of 2012, when the Costa Concordia wrecked off the coast of Italy, killing 32 people. Earlier this year, as the busy booking season was underway, fire disabled the Carnival Triumph and left passengers in uncomfortable conditions for days as the ship was towed to port.

Royal Caribbean faced its own issues, though none as serious: In May, Royal Caribbean International’s Grandeur of the Seas suffered a fire, though the ship did not lose power. In August, a motor had to be replaced on the Celebrity Millennium, part of the Celebrity Cruises brand owned by the parent company. That issue forced the line to cancel several sailings stretching into September.

“We’ve shown our resilience in the face of the various events and we’re beginning to demonstrate the strength of our business model and the strength of our brands as the industry recovers from these headwinds,” Royal Caribbean Cruises chairman and CEO Richard Fain said during a conference call with investors.

Looking forward, the company said prices for the first quarter of 2014 remained steady from a year earlier and are up for the following quarters. But pricing in the Caribbean remains under pressure and advance bookings are weaker, the company said.

Royal Caribbean raised its full-year adjusted earnings forecast to $2.30-$2.35 per share from $2.20-$2.30 per share.

Analysts on average were expecting $2.28 per share, according to Thomson Reuters I/B/E/S.

“2013 has been a challenging year for our industry featuring significant adverse publicity, much of which has featured Caribbean cruising in a negative light,” said Adam Goldstein, president and CEO of Royal Caribbean International. “Given the reality of extraordinary customer satisfaction and assuming no further negative events, we anticipate a more positive consumer attitude towards cruising by the end of the first quarter as the industry laps the beginning of the onslaught of negative media coverage.”

This report was supplemented with information from the Reuters news service.

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