Royal Caribbean Cruises saw third-quarter profits increase 34 percent compared to the same time last year, driven by strong performances in Europe and China and lower fuel prices.
The Miami-based cruise company said revenues increased from $2.31billion in 2013 to about $2.39billion this year, with net cruise costs excluding fuel down about one percent. Net yields, or revenue made per passenger per day, increased more than 4 percent as passengers spent 4.4 percent more while on their trips than a year ago.
In a call with analysts Thursday morning, chairman and CEO Richard Fain said the company is off to a good start on its goal to increase return on invested capital to double digits and to double this year’s earnings per share by 2017.
“We’re on a roll,” he said.
Adjusted earnings per share — which excluded a loss from the sale of Celebrity Century and a benefit from an accounting change — were $2.20, which beat analyst expectations of $2.19. Revenues came in just shy of the $2.4 billion expected. The world’s second-largest cruise company owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises and a few European brands.
Shares closed at $62.29, down 1.78 percent, after the company forecast fourth-quarter earnings of 35-40 cents per share, below analyst expectations. Executives said they are still forced to offer sales in the Caribbean, where competition is strong. They expect the trend to continue into the first quarter of next year.
“While pricing in the Caribbean remains challenging, we feel we have a good handle on the types of tactics that resonate well to drive demand,” said chief financial officer Jason Liberty.
Fain said demand has not been seriously affected by recent concerns over the Ebola virus.
Last week, amid concerns over the outbreak, a passenger who had been in a Dallas hospital’s lab with samples from an Ebola-infected patient was isolated during the second half of a Caribbean cruise operated by Carnival Cruise Lines. The woman, a lab supervisor, never showed any symptoms of illness and tests for the disease were negative. Still, the precautionary measure drew widespread attention to the potential threat to cruise passengers.
“Unfortunately, it is hard to assess the fear factor,” Fain said. “So far, we’ve not experienced any big impact on our bookings. Furthermore, the hysteria over the issue seems to have abated even over the last few days.”
Looking forward, the company said it expects significant earnings growth in 2015. Estimates are in line with a Wall Street consensus of $4.55 per share, which would be a nearly 32 percent increase over this year’s anticipated $3.45 per share.
“Overall, the tone of the market is simply very encouraging for us and that’s why we went to the fairly unusual length of confirming that we were comfortable with the Street’s estimates for ‘15,” Fain said. “We don’t usually do that this early.”
In a note to investors, William Blair & Company analyst Sharon Zackfia used the word “encouraging” when describing the company’s expectations for 2015.
“The first quarter is expected to be toughest, given increased capacity in the Caribbean...and a still-promotional environment, although yields are still expected to be positive in the first quarter,” she wrote. “Trends are expected to improve markedly after the first quarter against easier comparisons and declining capacity in the Caribbean.”
Despite the early Caribbean weakness, the company said booking trends are strong so far for 2015, especially for sailings in Europe, where Anthem of the Seas will launch in spring and megaship Allure of the Seas will spend the summer. Royal Caribbean will grow its presence in China by 68 percent next year, after the soon-to-launch Quantum of the Seas starts sailing from Shanghai in the summer.
Those moves will leave fewer cabins to fill in lower-priced markets, Fain said.
“Clearly we feel that we’re in a position to hold the price and not to give the kind of last-minute discounts that were more a feature particularly this year in the Caribbean,” he said. “We think we’re in a position to do that. And that’s our plan going forward.”