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UBS expects Royal Caribbean to hit Q3 profit consensus

UBS expects Royal Caribbean to hit Q3 profit consensus
UBS Investment Research expects Royal Caribbean to meet Wall Street's third quarter estimate when the company reports earnings—on Oct. 23, according to the brokerage, whose cruise pricing tracker has found average industry pricing flattish to slightly positive sequentially over three of the past four weeks.

UBS thinks RCL will turn in a $2.19 per share profit in Q3, a penny under guidance. Last year's Q3 EPS was $1.71.

The brokerage based its estimate on a constant-currency net yield increase of 4.2%, higher than the Street's estimate of up 3.5% and Royal Caribbean's guidance of approximately 4%. UBS expects an as-reported net yield increase of 5.8%, which is also above the Street's 5.1% estimate but within the company's guidance range of up 5% to 6%.  

UBS's estimate that constant-currency net cruise costs, excluding fuel, will be up 0.3% compares to the Street consensus of up 0.2% and guidance of flat to up 1%.

UBS analyst Robin Farley estimates a lower fuel benefit of about a penny per share for Q3, more than offset by a 1- to 2-cent negative impact of a stronger dollar. Fuel and foreign exchange combined might also have a slight net negative impact on full-year EPS, she said.

The brokerage expects Royal Caribbean to give initial yield guidance for 2015, perhaps just noting low single digit growth at this point, Farley said. UBS projects 2% yield growth for RCL next year.

Farley told investors Carnival Corp.'s August quarter, which had close-in Caribbean demand driving some of the Q3 upside, is a positive for Royal Caribbean since its Caribbean and Bermuda capacity comprised about 32% of Q3 deployment, and nearly 49% in Q4. Double-digit yield growth in Europe should also buoy Q3, and Carnival's positive commentary on China and double-digit yield growth in that market should also be positives for Royal Caribbean.

The UBS cruise price tracker found average industry pricing flattish to slightly positive sequentially over the past four weeks, excluding the week of Sept. 21. There was a 2.3% decline then because new 2015/16 sailings were announced.

UBS's tracker found pricing for Caribbean and Bahamas itineraries was positive sequentially over the four weeks, while Alaska pricing was stable following a solid sequential uptick in late August/September. Pricing for western Mediterranean cruises has been stronger than eastern Mediterranean itineraries, apart from the week of Sept. 21.

UBS found Norwegian Cruise Line pricing up sequentially 1.6% over the four-week period cumulatively, while Carnival pricing is flattish. Celebrity Cruises pricing is down 1.1%, followed by Princess, down 90 basis points, and Royal Caribbean down 80 basis points. Costa is down 40 basis points, while Holland America Line is flattish.

UBS rates Royal Caribbean 'buy,' with a $68 price target based on the higher end of 14 to 16 times estimated 2015 EPS of $4.28.

RCL closed at $57.82, down 36 cents, on Friday.

 

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