Earnings Preview: Royal Caribbean

Jason · April 21, 2006

Royal Caribbean Cruises Seen Posting First-Quarter Earnings Above Forecast

NEW YORK (AP) -- Royal Caribbean Cruises Ltd. reports earnings for the fiscal first quarter on Friday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Record oil prices, which translate into higher fuel costs, continue to weigh on earnings prospects for the cruise line industry. Operators have said they are taking measures to conserve fuel by shaving time off schedules and reducing speeds. Royal Caribbean has suggested that new engine room technologies and using different fuel grades could also help.

The Miami-based company, whose brands include Royal Caribbean International and Celebrity Cruises, was dealt a blow in late March when a bus carrying some of its cruise ship tourists tumbled down a ravine in Chile, killing 12 Americans. Rival Carnival Corp., the world's biggest cruise operator, suffered its own setback in March when a fire, possibly started by a cigarette aboard one of its ships, left one passenger dead, injured 11 others and scorched at least 100 rooms.

EXPECTATIONS: In February, Royal Caribbean forecast earnings per share of 45 cents to 50 cents for the first quarter, which includes a gain of 16 cents per share from a legal settlement. Analysts polled by Thomson Financial are looking for earnings of 48 cents per share, which includes the gain. The company expects a net yield increase of 1 percent to 2 percent during the quarter. Net yield is cruise revenue less airline revenue, travel agent commissions and other expenses.

ANALYST TAKE: Analyst Timothy Conder of A.G. Edwards & Sons. Inc. reaffirmed his "Buy" rating on Royal Caribbean's stock on Thursday due to the industry's broad long-term growth trend. He cautioned in a client note that Caribbean pricing issues and fuel prices will be in focus for the near-term. Conder expects first-quarter earnings of 48 cents per share, which includes the legal settlement gain.

Citigroup analyst Elizabeth Osur was optimistic -- but cautious as well -- about Royal Caribbean's first quarter, saying earlier this month that high fuel prices could squeeze operating margins. She expects earnings of 58 cents per share, including the gain.

WHAT'S AHEAD: The addition of six new ships to cruise line operators' fleets this year and reports from travel agents of a good performance during "wave season" -- the January-to-March booking season for summer trips -- should leave the cruise line industry in good shape, Andy Stuart, chairman of industry trade group Cruise Lines International Association, said in March.

STOCK PERFORMANCE: Royal Caribbean shares dropped 6.5 percent for the three months ending March 31 and are so far down 8 percent for the year.