RCI Says Wave Is ‘Solid,’ But Nervous Investors Send Stock Sliding

Cruise Week

Under pressure from geopolitical issues and concerns ranging from China’s economy to the soaring USD, cruise stocks opened the year with the worst January since the Concordia disaster in 2012.

Admittedly, the rest of the stock market struggled mightily as well, with its worst January performance since 2009. But cruise stocks struggled more than most of the market as a whole. For instance, Royal Caribbean ended January down more than 19% for the month. In comparison, the U.S. stock market was down just over 5%.

Given those numbers, there was heightened interest as to how business is holding up, leading into Royal’s earnings report and conference call yesterday morning.

As of Monday, prior to the call, there was a sense from various reports that business itself, at least from North America was fine despite the hurdles. But when the report actually arrived, general reaction from financial analysts was not as upbeat. Clearly, following a hugely successful 2015, analysts now see Royal as facing hurdles for 2016.
For instance, Patrick Scholes of SunTrust wrote: “2016 light - guidance below consensus.” Todd Jordan/Felix Wang of Hedgeye wrote, “High expectations and tepid guidance.”
The pair from Hedgeye explained their conclusion as follows: “RCL missed our expectations this morning on 3 fronts and offered less than stellar 2016 guidance:

1) slower 2016 bookings growth relative to where they stood last quarter;

2) Q4 2015 yield and revenue miss relative to consensus;

3) higher cost guidance due to smaller than expected gains on fuel expense.”

During the actual conference call, Royal’s stock dropped dramatically, well into double digits, down by 18% at one point. Still, execs were uniformly upbeat during their prepared commentary and emphasized that overall sales from North America are doing well.
“We’re happy to report this is proving to be a solid Wave,” said Chairman & CEO Richard Fain. “As we have seen, geopolitical concerns can also turn the demand environment from time to time. These threats are generally limited to pockets of our portfolio, and we generally manage through them.”
CFO Jason Liberty added the following: “We are seeing particular strength from the North American consumer and our Caribbean and Alaska products are currently booked at record load factors.”
Liberty’s comments mirrored retail reports: “We did experience a softening in North American demand for a short period after the Paris attacks in November… demand quickly returned to typical levels, although pricing remains below the same time last year for eastern Mediterranean sailings.”

During their prepared comments, Royal execs skipped references to the Zika virus and how the strength of the USD is impacting business, but it came up quickly during the Q & A session.

Royal Caribbean International President & CEO Michael Bayley indicated no impact from Zika so far. “To date we have really seen no impact whatsoever. It’s really been immaterial. Obviously, it’s all over the media and we see it, but to date we haven’t had any material impact.”

So business from North America appears OK at this time, but cruise stocks remain under pressure due to the global situation.

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