Royal overshoots Q1 but shaves outlook on stronger dollar, fuel costsRoyal overshoots Q1 but shaves outlook on stronger dollar, fuel costs

Commercially the year is turning out as expected, with strong booking trends and yield growth for all major products, and cost efficiencies are mitigating a large portion of the impact of the stronger dollar and higher fuel costs.

Q1 adjusted net income was 20 cents per share, higher than the consensus expectation of 14 cents and guidance of 10 cents to 15 cents. Currency and fuel negatively impacted the quarter by a nickel per share.  US GAAP net income was 20 cents per share, up from 12 cents in 2014.

Strong close-in pricing on Caribbean sailings drove a better than anticipated net yield performance of down 1% on a constant-currency basis and down 5.4% as reported. Net cruise costs excluding fuel rose 0.9% in constant currency and were down 1.7% as reported, significantly better than guidance thanks to further efficiencies.

Royal Caribbean now expects adjusted EPS for 2015 in a range of $4.45 to $4.65, 20 cents lower than previous guidance. The stronger dollar and higher fuel prices have negatively impacted the full year by 36 cents. Second quarter guidance is for EPS of 70 cents.

Full-year net yields are expected to increase 2.5% to 4% on a constant-currency basis and be down 0.5% to 2% as reported. The company attributed the slight narrowing of the range as driven by somewhat weaker on-board revenue trends from non-US passengers due to the strengthening of the US dollar.

Strong close-in demand for Caribbean sailings 'catapulted yields over the top end of guidance' and more than offset weaker on-board sales from internationally sourced customers, Royal Caribbean said. Given that the majority of on-board revenue sales are priced in US dollars, the stronger dollar reduced the purchasing power of many of internationally sourced passengers, which modestly affected their on-board spend.

Net cruise costs excluding fuel are expected to be flat to down 1% on a constant-currency basis and down 2.5% to 3.5% as reported.

Royal Caribbean chairman and ceo Richard Fain noted both revenues and expenses exceeded expectations and said that despite ongoing volatility in the currency and fuel markets, the company's 'Double-Double' plan to double profit and return on invested capital 'remains solidly on track.'

CFO Jason Liberty said an 'unwavering commitment to cost consciousness' has helped Royal Caribbean identify further efficiencies that are driving a significant shift in cost guidance for the full year.

Overall booking volumes during Q1 were higher than prior year levels even after adjusting for a capacity increase. There was particularly strong demand for Caribbean itineraries, and bookings were also up year over year for Europe and China itineraries. Actions to extend the booking curve have resulted in higher booked load factors and average per diems than historical levels.

Royal Caribbean added that more recently it has taken further steps to improve the integrity of its pricing model including steps to eliminate last-minute discounting.

Overall, European itineraries are booked at a higher load factor and APD than last year. Western Mediterranean itineraries have been booking well, while trends have been a little weaker for eastern Mediterranean itineraries, particularly those that turn around in Turkey.

Demand for China remains strong and bookings have been outpacing expectations despite the significant capacity growth in the region.