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Royal Caribbean (RCL) Down 9.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Royal Caribbean (RCL). Shares have lost about 9.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Royal Caribbean due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Royal Caribbean (RCL) Q2 Earnings & Revenues Beat Estimates

Royal Caribbean reported impressive second-quarter 2019 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Notably, its top and bottom lines outpaced the consensus mark for the third straight quarter.

Adjusted earnings of $2.54 per share surpassed the Zacks Consensus Estimate of $2.45 and also increased 11.9% year over year, owing to higher revenues.

Total revenues were $2,806.6 million, outpacing the consensus mark of $2,794 million and increased 20.1% from the year-ago quarter number. This upside can be attributed to higher passenger ticket as well as onboard and other revenues.

Quarterly Highlights

Passenger ticket revenues improved 20.6% to $2,017.8 million, and onboard and other revenues increased 18.6% to $788.8 million.

On a constant-currency basis, net yields rose 9.5% year over year. This improvement was driven by solid demand for core products as well as onboard experiential products and activities. However, travel restrictions to Cuba had a 30 basis point (bps) of negative impact.

Net cruise costs (NCC), excluding fuel per APCD, rose 8.9% on a constant-currency basis, lower than management’s expectation of 10% increase.

Total cruise operating expenses of $1,544.5 million improved 17.5% on a year-over-year basis. The company witnessed rise in operating expenses at the Payroll and related, Onboard and other, Commissions, transportation and other, and other operating segments. Fuel expenses also increased during the quarter under review.

3Q19 Guidance

For the third quarter of 2019, Royal Caribbean expects adjusted earnings per share to be $4.35. The Zacks Consensus Estimate for its third-quarter earnings is currently pegged at $4.33.

Constant-currency net yields are projected to increase 6.5%. NCC, excluding fuel, is likely to improve 11% on a constant-currency basis.

2019 View

Royal Caribbean projects earnings of $9.55-$9.65 per share for 2019 compared with $9.65-$9.85 mentioned earlier. The Zacks Consensus Estimate for current-year earnings stands at $9.65. The company expects net yields between 7.8% and 8.3% on a constant-currency basis, lower than the prior guidance of 7.5-9%.

NCC, excluding fuel, is expected to be up 10-10.5% on a constant-currency basis.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Royal Caribbean has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Royal Caribbean has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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