July 24, 2014

Royal Caribbean profits surge in second quarter

Miami-based Royal Caribbean Cruises saw gains in second-quarter performance compared to the previous year and raised its outlook for 2014.

Bargain prices in the Caribbean didn’t drag down earnings for Royal Caribbean Cruises in the second quarter.

The Miami-based cruise operator said Thursday that higher prices than expected for late-booked sailings in Europe and China drove positive results for the three-month period that ended June 30.

Spending on popular onboard items such as drink packages and internet service also boosted results, increasing 3 percent. Net revenue yields, which measure revenue per berth per day, increased 2.6 percent.

Revenue increased to $1.98 billion from $1.88 billion the previous year, though that number just missed Wall Street expectations. Costs excluding fuel were down 4.7 percent, and net income jumped to $137.7 million from $24.7 million a year earlier.

Adjusted earnings of $.66 per share soundly beat the company’s own expectations as well as analyst predictions. The company raised its forecast for the full year from $3.25-$3.45 per share to $3.40-$3.50.

Shares of Royal Caribbean closed at $60.56 Thursday, up 7.7 percent from the previous day’s close.

Royal Caribbean Cruises owns several brands in the United States and Europe, including Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France.

UBS Investment Research leisure analyst Robin Farley pointed out in a note to investors that double-digit yield increases for Europe and China itineraries are “perhaps a good sign” for Royal Caribbean International as it starts sailing year-round from China next year with its newest ship, Quantum of the Seas.

Adam Goldstein, the parent company’s president and chief operating officer, said the news out of China has been good so far, but more investment is required to build consumer awareness and loyalty.

“We’re certainly pleased with how it’s gone so far,” he said. “We’ve scored a couple of runs in the first inning, but there’s a lot more innings to play.”

With an eye to the next few years, Royal Caribbean Cruises Chairman and CEO Richard Fain announced a new goal for the company: increase return on invested capital to double digits and double 2014 earnings per share by 2017.

“Obviously, these are aggressive goals, especially since our starting point will be record earnings this year,” Fain said of the “Double-Double Program.”

To meet the objectives, Royal Caribbean will focus on optimizing revenues, controlling costs and growing at a moderate pace, Fain said.

In a note to investors, Morningstar equity analyst Jaime Katz called the plan “ambitious, but feasible, if the company continues to control costs stringently and improve pricing through strategic deployment of its assets.”

She cautioned that stars must align in order for Royal Caribbean to get the results it seeks — earnings as high as $6.80-$7 per share by 2017.

“Most importantly, the industry has to face no further media scrutiny or major downward trend in global consumer confidence,” Katz wrote.

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