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Royal Caribbean Banks on Profitability Efforts, Costs Mount
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Royal Caribbean Cruises Ltd. (RCL - Free Report) is investing heavily in capacity expansion and fleet modernization with a view to enhance guest experience, catering to changing demand for cruise vacations across the world.
The company posted strong fourth-quarter 2017 results, beating the Zacks Consensus Estimate for earnings by 11.7% and the same for revenues, by 1%. While the bottom line grew 8.9% year over year, the top line rose 4.9%.
Royal Caribbean has had an impressive run on the bourse over a year’s time. Shares have rallied 21.9%, significantly outperforming the industry’s gain of 14.7%.
Double-Double Achieved
Royal Caribbean launched a profitability initiative called Double-Double program in 2014. The project aimed at doubling the company’s 2014 earnings per share by 2017, thus bringing its return on invested capital (ROIC) to double-digit percentages and bettering revenue yields plus adopting cost-control measures as well as moderating capacity growth. Management notes that the company has achieved its preset targets in 2017 and reported EPS of $7.53 with the ROIC having risen to above 10%. On a further positive note, the company expects 2018 to be another great year of double-digit EPS growth.
Royal Caribbean also has a multi-year program named 20/20 Vision in place, leveraging the culture and discipline instilled by Double-Double while also gearing up for a broader set of goals. The program serves as a guiding light to the organization and builds on its proven formula for success of delivering modest yield and capacity growth plus a strong cost control combined with efforts to enhance customer advocacy and employee engagement.
Under this program, the company strives to improve its already excellent guest satisfaction and employee engagement while at the same time, delivering its environmental commitments. These operational drivers are expected to further improve the company’s double-digit return profile and boost double-digit earnings per share by the end of 2020.
Royal Caribbean’s recent announcement of multibillion-dollar investments in a couple of new programs namely Perfect Day Island Collection and Royal Amplified, seem integral to the 20/20 vision.
Perfect Day Island Collection focuses on the company’s private island destinations internationally. The first edition of collection will feature Royal Caribbean’s private island in the Bahamas, CocoCay, which the company is likely to upgrade by splurging $200 million. The company will announce additional destinations of this collection in Australia, Asia and the Caribbean at a later date.
Under the Royal Amplified, the company aims to pump $900 million into modernization of 10 ships over a span of four years.
Higher Costs Remain a Hurdle
Such investments will help Royal Caribbean shift its deployment toward Asia, Australia and certain areas of Europe to curtail capacity in regions with geopolitical risks. This move is likely to improve yields. However, costs might escalate.
The company does not expect expenditures to offer a noteworthy prospective benefit until 2019 or 2020. In fact, it anticipates net cruise costs, excluding fuel, to be up about 1.5-2% year over year in 2018.
Wynn Resorts, Las Vegas Sands and Caesars Entertainment earnings in 2018 are expected to improve 43.2%, 10.2% and 117.5%, respectively.
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Royal Caribbean Banks on Profitability Efforts, Costs Mount
Royal Caribbean Cruises Ltd. (RCL - Free Report) is investing heavily in capacity expansion and fleet modernization with a view to enhance guest experience, catering to changing demand for cruise vacations across the world.
The company posted strong fourth-quarter 2017 results, beating the Zacks Consensus Estimate for earnings by 11.7% and the same for revenues, by 1%. While the bottom line grew 8.9% year over year, the top line rose 4.9%.
Royal Caribbean has had an impressive run on the bourse over a year’s time. Shares have rallied 21.9%, significantly outperforming the industry’s gain of 14.7%.
Double-Double Achieved
Royal Caribbean launched a profitability initiative called Double-Double program in 2014. The project aimed at doubling the company’s 2014 earnings per share by 2017, thus bringing its return on invested capital (ROIC) to double-digit percentages and bettering revenue yields plus adopting cost-control measures as well as moderating capacity growth. Management notes that the company has achieved its preset targets in 2017 and reported EPS of $7.53 with the ROIC having risen to above 10%. On a further positive note, the company expects 2018 to be another great year of double-digit EPS growth.
Royal Caribbean Cruises Ltd. Net Income (TTM)
Royal Caribbean Cruises Ltd. Net Income (TTM) | Royal Caribbean Cruises Ltd. Quote
20/20 On the Way
Royal Caribbean also has a multi-year program named 20/20 Vision in place, leveraging the culture and discipline instilled by Double-Double while also gearing up for a broader set of goals. The program serves as a guiding light to the organization and builds on its proven formula for success of delivering modest yield and capacity growth plus a strong cost control combined with efforts to enhance customer advocacy and employee engagement.
Under this program, the company strives to improve its already excellent guest satisfaction and employee engagement while at the same time, delivering its environmental commitments. These operational drivers are expected to further improve the company’s double-digit return profile and boost double-digit earnings per share by the end of 2020.
Royal Caribbean’s recent announcement of multibillion-dollar investments in a couple of new programs namely Perfect Day Island Collection and Royal Amplified, seem integral to the 20/20 vision.
Perfect Day Island Collection focuses on the company’s private island destinations internationally. The first edition of collection will feature Royal Caribbean’s private island in the Bahamas, CocoCay, which the company is likely to upgrade by splurging $200 million. The company will announce additional destinations of this collection in Australia, Asia and the Caribbean at a later date.
Under the Royal Amplified, the company aims to pump $900 million into modernization of 10 ships over a span of four years.
Higher Costs Remain a Hurdle
Such investments will help Royal Caribbean shift its deployment toward Asia, Australia and certain areas of Europe to curtail capacity in regions with geopolitical risks. This move is likely to improve yields. However, costs might escalate.
The company does not expect expenditures to offer a noteworthy prospective benefit until 2019 or 2020. In fact, it anticipates net cruise costs, excluding fuel, to be up about 1.5-2% year over year in 2018.
Zacks Rank & Key Picks
Royal Caribbean has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Consumer Discretionary sector are Wynn Resorts (WYNN - Free Report) , Las Vegas Sands (LVS - Free Report) and Caesars Entertainment (CZR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wynn Resorts, Las Vegas Sands and Caesars Entertainment earnings in 2018 are expected to improve 43.2%, 10.2% and 117.5%, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>