Royal Caribbean Blames Fuel Costs For Soft Earnings, Guidance

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 |  About: Royal Caribbean Cruises Ltd. (RCL)
by: William Trent, CFA

Royal Caribbean Cruises Ltd. (NYSE:RCL) announced net income for the second quarter 2007 of $128.7 million, or $0.60 per share, compared to net income of $122.4 million, or $0.57 per share in 2006. The results were consistent with previous guidance of $0.58 to $0.63 per share and the $0.59 consensus. Revenues for the second quarter 2007 increased to $1.5 billion from revenues of $1.3 billion in the second quarter 2006 and well ahead of the $1.42 billion consensus.

The company also announced that the full year earnings guidance is substantially unchanged except for the impact of higher fuel prices. The company does not forecast fuel prices, and, adjusting for current spot pricing, full year 2007 earnings are expected to be $2.75 to $2.85 per share, compared with a consensus estimate of $2.95.

So we see revenue ahead of estimates but earnings at the low end of guidance, and this is supposed to be fuel costs? Seems a little excessive. The significantly lower earnings for the next couple of quarters also is supposed to be on fuel, but could it be lower load factors affecting the fixed cost structure?

RCL was a long-term holding of mine, but I sold it nearly a year ago due to premature consumer slowdown fears. The stock is up modestly from where I sold it, though it has been essentially flat for much of that time. Cruise companies tend to trade poorly during consumer recessions even though their fundamentals generally hold up well. If the current market jitters continue I might be tempted to get back in.

RCL 1-yr chart:

RCL 1-yr chart