RCL blows past Q3 forecasts despite 20¢/share hurricane hit

In spite of a 20-cent per share impact from hurricanes, Royal Caribbean Cruises Ltd. sailed past Wall Street expectations to turn in a record $3.49 per share profit in the third quarter.

The company updated its full-year guidance to a range of $7.35 to $7.40, a nickel less than previously at the top end and compared to the $7.40 consensus forecast. The outlook includes a 26-cent negative impact from hurricanes. Q4 adjusted earnings are expected to be in the range of $1.15 to $1.20 per share.

RCL reported strong early booking trends for 2018, with booked load factors and average per diems higher than at the same time last year while the booking window has continued to extend. While cautioning it's still early in the booking cycle, the company described the view for 2018 as 'encouraging,' and another year of solid yield and earnings growth is expected.

The storms were 'unusually impactful because of when and where they hit,' RCL said. The net effect will cost the company in excess of $55m, or 26 cents per share this year.

Most of this impact was from lost revenue, but there were also direct costs associated with the storms and with the company's humanitarian efforts. In addition, there were significant timing shifts across a wide range of activities as expenses were shifted between quarters to adjust to the storms.

Nevertheless, RCL still expects to generate earnings for the year within the increased range of guidance provided prior to the storms.

Third quarter US GAAP and adjusted net income were $752.8m, or $3.49 per share, 8 cents above the consensus forecast and 4 cents higher than guidance. This compares to the year-ago GAAP profit of $693.3m, or $3.21 per share, and adjusted net income of $690.9m, or $3.20 per share. Revenues were a flat $2.56bn.

Net yields were up 5.3% in constant currency and up 5.9% as reported. This was better than previous guidance due to strong close-in booking and pricing trends for China, Europe and North American itineraries. While the hurricanes had a negative impact on overall revenue, they were neutral to Q3 net income.

Net cruise costs excluding fuel per available passenger cruise day were up 5.7% in constant currency and 6% as reported. The reduction in capacity due to the hurricanes mainly drove the increase in the cost metric relative to guidance. Absolute costs for the quarter were better than expected, mainly due to timing.

Favorable fuel trends—both price and consumption—also benefited the quarter.

'Delivering record earnings during a period of such unprecedented disruption is a testament to the strength in demand for cruising and for our brands,' EVP and CFO Jason Liberty said. He added that strong demand trends coupled with continued cost discipline enabled the company to already achieve its 'Double-Double' performance targets on a trailing 12-month basis through September.

(The program had targeted adjusted EPS of $6.78 in 2017, double the 2014 adjusted EPS of $3.39, and 10% return on invested capital in 2017, compared to ROIC of 5.9% in 2014.)

Chairman and CEO Richard Fain thanked employees for their 'remarkable efforts' in the Double-Double program.

'The recent storms presented extraordinary challenges and I am extremely proud of the generosity, strength of character and sense of social responsibility displayed by our employees and the industry as a whole,' he said.

The company's newly announced '20/20 Vision' program aims to improve what Fain said are already excellent guest satisfaction and employee engagement, while delivering environmental commitments. These operational drivers are expected to further strengthen the company and help deliver double-digit adjusted earnings per share by fiscal 2020, while further improving on RCL's double-digit ROIC.

'20/20 Vision will serve as a guiding light for the organization over the next three years. The program builds on our proven formula for success: modest yield growth, strong cost control and moderate capacity growth, while incorporating key operational drivers of our long-term progress,' Fain said.

Posted 07 November 2017

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Anne Kalosh

US editor of Seatrade Cruise Review and Seatrade Cruise News

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