Royal Caribbean Cruises Ltd. (RCL - Analyst Report) posted mixed first-quarter 2015 results with earnings beating the Zacks Consensus Estimate but revenues lagging the same.

Adjusted earnings of 20 cents per share comfortably beat the Zacks Consensus Estimate of 14 cents by 42.9%. Earnings were at the higher-end of the management’s guidance range of 10 to 15 cents.

However, earnings declined 4.8% year over year, mainly due to the negative impact of currency translation.

Royal Caribbean Cruises Ltd. - Earnings Surprise | FindTheCompany

Total revenue decreased 3.8% year over year to $1.82 billion due to lower onboard spending as well as passenger ticket revenues. Further, revenues missed the Zacks Consensus Estimate of $1.83 billion by 0.5%.

Quarter Highlights

On a constant currency basis, net yields declined 1% year over year. This was within the company's guidance of 1.5% to 2% decrease. Strong close-in pricing on Caribbean sailings drove the better-than-anticipated performance.

Passenger ticket revenues were down approximately 3.1% year over year to $1.31 billion. Onboard and other revenues also declined 5.6% year over year to $508.8 million.

Net cruise costs (NCC), excluding fuel, increased 0.9% on a constant currency basis, lower than management’s expected range of 2% to 3% increase. Better cost control led to better-than-expected cruise costs.

Total cruise operating expenses decreased approximately 6.2% year over year to $1.2 billion mainly due to a drop in onboard and other expenses, fuel costs and other operating costs.

Second-Quarter 2015 Guidance

The company expects adjusted earnings per share to be 70 cents in the second quarter, up year over year. However, the Zacks Consensus Estimate stands substantially higher at $1.09. We believe that earnings will remain under pressure due to lower revenues from its Caribbean business.

Constant-currency net yields are expected to be up approximately 3.5%. NCC, excluding fuel, is expected to increase within 2% to 3%.

2015 Guidance

Adjusted EPS is currently expected in the range of $4.45–$4.65, down from $4.65–$4.85. The company noted that since January, the strong U.S. dollar and the increase in fuel prices are expected to negatively impact earnings by 36 cents. The Zacks Consensus Estimate for 2015 stands at $4.77 per share.

Royal Caribbean’s Double-Double Program (announced during the second-quarter earnings call) is expected to result in increased cost control, and projects 2015 earnings per share to increase 40% year over year.

The company reduced the higher end of its guidance and now expects net yields to increase 2.5% to 4%, on a constant-currency basis, down from 2.5% to 4.5% increase, for 2015. The change in outlook is primarily due to a strong dollar.

NCC, excluding fuel, on a constant-currency basis, is expected to be flat to down 1%, better than the earlier guidance of up 1% or slightly higher.

Bookings

Royal Caribbean’s bookings over the past three months have been higher than the prior-year levels. Caribbean itineraries enjoyed particularly strong demand, and bookings were also up year over year for Europe and China itineraries. Load factors were also higher from the year-ago quarter.

Our Take

Strong booking trends are indicative of strong growth, going forward. However, their impact is expected to be tempered by higher cruise costs. Royal Caribbean currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include International Speedway Corp. (ISCA - Snapshot Report), Live Nation Entertainment, Inc. (LYV - Snapshot Report) and The Marcus Corp. (MCS - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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