Royal Carribean Reports Strong Results Amid Future Concerns

By Markets Fool.com

Royal Caribbean Cruises Ltd. (NYSE: RCL) had a strong second quarter but warned investors that currency concerns -- specifically those related to the United Kingdom leaving the European Union -- would impact the rest of the year.

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The company reported Q2 GAAP and adjusted earnings of $1.06 and $1.09, respectively, up over 25% from last year, beating its own expectations. Royal Caribbean also noted in its earnings release that it expected full-year adjusted earnings to come in up approximately 25%, between $6 and $6.10, down $0.20 from the midpoint of its earlier guidance. It blamed the shortfall on a negative impact of approximately $0.27 per share related to currency and fuel prices.

"While there are always puts and takes in our key markets, our portfolio is performing as expected, our booked position remains strong, and our new builds are entering their markets to great fanfare," said CFO Jason T. Liberty in the release. "These factors are driving another year of record earnings."

Royal Caribbean's Independence of the Seas arrives into port. Image source: Royal Caribbean.

A look at the numbers

In Q3, and for the rest of the year, the cruise line reported its number of bookings remains strong, close to last year's record levels.

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"Looking further ahead, the company's booked position for the next twelve months is also strong, up on both rate and volume, versus same time last year," the company wrote. That's driven by continued strength for North American products, which have helped offset weakness in the Eastern Mediterranean and Shanghai.

The company did attribute $0.14 of its $0.27 in downward-revised expectations to weakness in the British pound due to the British vote to leave the EU. Royal Caribbean has been helped by lower-than-expected fuel prices, which offset some of the full-year impact of weaker foreign currencies and an expected rise in fuel prices.

Overall net cruise costs (NCC), excluding fuel, were up 1.9% on a constant-currency basis (in-line with guidance), and the company expects that number to drop to 1% for the rest of the year.

Still on course

While the company does face some potential negative headwinds when it comes to the U.K. market and overall fuel prices, CEO Richard Fain said he believes the company is set for a strong year during the post-earnings conference call, which S&P Capital IQreported:

[O]verall, we would rate this year as another one for the plus column, with business consistent with expectations, including the usual swings and roundabouts in individual markets. Commercially, the Eastern Med and China have experienced some softness, while the Baltic, Western Mediterranean, Caribbean and Alaska have been strong. This is particularly important, because these latter products represent over 60% of our business. And having strength in your biggest market is what every commercial person prays for.

Fain also told people on the call that the company remains on track to meet its Double-Double goals, an ambitious plan to double its 2014 earnings per share and to achieve double-digit return on invested capital (ROIC) by 2017.

"Our program to accomplish that continues to focus on the same three pillars: yield improvement, effective cost control and modest capacity growth," he said. "The Double-Double program is working for us. And as we approach the final year of the program, our confidence in these targets remains firm."

To deliver Double-Double as promised, Fain noted the company needs to deliver low, single-digit yield improvement while controlling spending. It has been able to do that, so it's clear the company remains on track for its stated goal, which should cheer investors despite the numbers this year not being quite as high as originally forecast.

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Daniel Kline has no position in any stocks mentioned. He may go on his first cruise next year. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.