Royal Caribbean Beats Expectations in Q3

Cruise shipping giant Royal Caribbean Cruises Ltd. has reported better than anticipated third quarter results and raised adjusted earnings guidance to approximately $4.80 per share, mostly driven by strong momentum in the Caribbean.

The cruse line’s adjusted net income for the period was $628.1 million, or $2.84 per share, versus $492.9 million, or $2.20 per share, in 2014.

This excludes the non-cash impairment charges totaling $399.3 million in the third quarter. These charges relate to Pullmantur’s goodwill, the brand’s trademark and trade names, and a reduction in the value of select vessels in the Pullmantur fleet.

Net Yields on a Constant-Currency basis increased 5.1% during the quarter, approximately 130 basis points better than the mid-point of previous guidance. Close-in Caribbean and European demand and strong performance in Asia more than off-set further weakness in Latin America.

Looking ahead to 2016, Royal Caribbean said that the current order book is better than same time last year for both volume and price.

“Our business trajectory keeps us solidly on the path to the Double-Double,” said Richard D. Fain, chairman and chief executive officer.

“Even though we are disappointed to have such a large non-cash charge related to Pullmantur, we are enthusiastic about the overall strength of our brands and our ability to continue our dramatic profitability growth.”

The company also announced today that it expects to implement an orderly program to repurchase up to $500 million of its common stock. The company plans to begin with an accelerated share repurchase transaction of $200 million that should be completed by the end of January 2016. Future transactions could include open market purchases or additional accelerated share repurchases. The company expects to complete the program by year-end 2016.

“This share repurchase program, in combination with another year of over 40% earnings growth, and the recent 25% increase in the dividend, exemplify our ongoing commitment to improving shareholder returns, one of our core financial objectives,” said Jason T. Liberty, chief financial officer.

Royal Carribean said that numerous structural changes made so far are driving a stronger fourth quarter. The growth of the Asia-Pacific region, including Quantum of the Seas sailing in China, boosts earnings in the typically lighter shoulder season. The addition of new capacity, with Anthem of the Seas joining the fleet, efforts to drive incremental Onboard Revenue, and a continued focus on cost efficiencies also contribute to a stronger end of the year.

“As we have reiterated throughout the year, we remain ahead on both pricing and volume versus same time last year,” said Liberty. “While Latin America is stressing yields in the fourth quarter, strong year-over-year pricing in the Caribbean, and the addition of capacity in China, will solidify this fourth quarter as the best in our company’s history.”

In terms of outlook, the cruise line said it was experiencing good early booking trends for 2016. Booked load factors and APDs are higher than same time last year and the booking window has extended.

“Management is excited by the 2016 introduction of Harmony of the Seas starting in Europe next summer and adding Ovation of the Seas to its Chinese platform to take advantage of the strong reception this class of ships has received there. While still early in the booking cycle, the view for 2016 is encouraging, and the company expects another year of solid yield and earnings growth,” the company said in a statement.

“As we turn the corner into 2016 we have our sights firmly set on our 2017 Double-Double targets,” said Fain. “Next year represents a positive step on that journey.”