CRUISE INDUSTRY | Royal Caribbean

Royal Caribbean has raised outlook despite lower profits

Royal Caribbean Cruises said discounted prices in the Caribbean and a handful of voyage disruptions contributed to lower profits in the first quarter, but executives raised their forecast slightly for the rest of the year.

The world’s second-largest cruise ship company on Thursday reported profits of $26.5 million in the first quarter of 2014, compared to $76.2 million a year earlier.

Adjusted net income, which did not include nearly $20 million in restructuring charges and loss from the sale of Spanish brand Pullmantur non-core businesses, was $46.1 million, or 21 cents per share. That was at the low end of the company’s guidance for the quarter and fell short of analyst expectations of 28 cents per share.

Revenues dropped slightly to about $1.89 billion. Yields, or the revenue made per berth per day, dropped less than half a percent due in part to six sailings that were shortened or canceled during the quarter. Those include one voyage affected by an oil spill in Galveston and another cut short by an outbreak of norovirus.

Royal Caribbean’s share price slid less than half a percent to $52.43.

Still, executives had reasons for optimism: While Caribbean pricing was still a drag, yields in Europe, which had struggled for years, and Asia, where Royal Caribbean is making a big push, were up. Bookings have increased 20 percent over the last eight weeks compared to a year earlier.

“We really have been a little bit surprised that the post-wave period has been as strong as it’s been,” said Royal Caribbean Cruises chairman and CEO Richard Fain, referring to the busy “wave” booking period at the beginning of the year. “The volumes have just been unprecedented.”

And other than a large outbreak of stomach illness on a ship in January, no disasters befell the industry during the quarter ending March 31, unlike in the past couple of years. Two year ago, the Costa Concordia wrecked in Italy, killing 32 people; last February, fire on the Carnival Triumph disabled the ship and left passengers in discomfort for several days.

“Most importantly, it’s a real pleasure to be talking today about how we’re beginning to realize the potential of our business model rather than having to point out how resilient we are,” said chairman and CEO Richard Fain.

Royal Caribbean raised its full-year earnings forecast to $3.25-$3.45 per share from its previous forecast of $3.20-$3.40 per share. It expects net yields to increase 2 percent to 3 percent.

The Miami-based company owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and three European brands.

Analysts took the lower profits in stride, encouraged by the higher forecast.

Harry Curtis, senior leisure analyst at Nomura Equity Research, wrote in a note to investors that Wall Street had been concerned that the company might lower its yield outlook. But Royal Caribbean said it still expects yields to be up 2-3 percent for the year.

“This confirms what we see in our cruise survey, that pricing is improving through the remainder of the year, which should be enough to put the Street’s concerns to rest,” he wrote.

This report was supplemented with information from Reuters.

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