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RCL profit up on Caribbean, China strength but 2016 outlook is under consensus forecast

Forecasts for Q1 and full-year 2016 profit are lower than Wall Street expectations
Stronger Caribbean demand and new winter sailings in China pushed Royal Caribbean's fourth quarter to a higher than expected profit, and the company said its 2016 booked position is roughly equal to last year's record high, and at higher rates. Its guidance for 2016 earnings, however, was lower than the Wall Street consensus forecast.

In Q1 Royal Caribbean is being impacted by the stronger dollar, increased interest rates and higher marketing expenses.

Adjusted and US GAAP profit for the fourth quarter was $206.8m, or 94 cents per share, up from $70m, or 32 cents per share, a year earlier. This was 2 cents higher than the consensus expectation. Constant-currency net yields were up 4.9%, versus guidance of up 4.5% to 5%. Revenues were $1.9bn, up from $1.8bn.

Adjusted profit for 2015 was better than guidance, at $1.07bn, or $4.83 per share, up 42% from the $755.7m, or $3.39 per share in 2014. On a US GAAP basis, profit was $665.8m, or $3.02 per share, compared to $746.1m, or $3.43, in 2014. The GAAP results include a $399.3m non-cash impairment charge related to Pullmantur's re-focus on Spain as a result of the deteriorating economies in Latin America. Revenues edged up to $8.3bn from $8bn.

2015 constant currency net yields rose 3.5%, higher than the 2.4% increase in 2014. The net impact for currency and fuel was a negative 25 cents per share compared to January guidance. 

'Our core brands are firing on all cylinders, our new ships are performing exceptionally well and our costs are well controlled. This is driving 40%-plus earnings growth in two consecutive years,' Royal Caribbean chairman and ceo Richard Fain said.

But the company's forecasts for Q1 and full-year 2016 profit were lower than consensus expectations. For the year, Royal Caribbean guided to a range of $5.90 to $6.10, under the consensus forecast of $6.27. Adjusted earnings per share for Q1 are expected to be around 30 cents, a dime higher than Q1 2015 but also under the 46-cent consensus expectation.

Over the past several months the dollar has continued to strengthen while fuel prices have fallen, resulting in a negative 14-cent impact to 2016 EPS. Higher interest rates are costing an additional 6 cents in EPS.

A strong Caribbean environment and Quantum of the Seas' first winter in China are behind the anticipated 4% constant currency net yield increase in Q1. Costs will be higher, too. Royal Caribbean said that while cost discipline continues, expenses are more concentrated in Q1. This is due to a higher number of drydocks, the expansion in China, more marketing for core brands and expenses leading up to the Q2 introduction of Ovation of the Seas and Harmony of the Seas.

Continued strength from North American consumers is driving strong demand for products such as Caribbean, Alaska and Bermuda cruises, which represent more than 50% of capacity for the year. These North American products combined with strong demand for Northern Europe and Asia sailings are expected to more than offset current pricing challenges impacting the Mediterranean, Australia and Brazil.

The company expects a constant currency net yield increase of 2% to 4% for the full year.

'Despite some challenges in select destinations, our strong brands, innovative hardware and deployment optimization are continuing to deliver strong yield growth in 2016,' cfo Jason Liberty said. 'These yields coupled with continued cost discipline are expected to result in another year of step change performance.'