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Category: Stock Market and Royal Caribbean Cruises
Date: 4 February 2020 Stock Price: $117.92 We take a look at the 4th quarter earnings report of their 2019 fiscal year of Royal Caribbean Cruises a global cruise vacation company that operates a total of 61 ships and has an itinerary across all 7 continents.
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About Royal Caribbean Cruises
Royal Caribbean Cruises Ltd. (NYSE: RCL) is a global cruise vacation company that controls and operates four global brands: Royal Caribbean International, Celebrity Cruises, Azamara and Silversea Cruises. We are also a 50% joint venture owner of the German brand TUI Cruises and a 49% shareholder in the Spanish brand Pullmantur Cruceros. Together these brands operate a combined total of 61 ships with an additional 17 on order as of December 31, 2019. They operate diverse itineraries around the world that call on all seven continents.
Overview of Royal Caribbean Cruises' 4th quarter 2019 earnings report
The data below refers to the latest quarter's data unless specified otherwise:
- Revenue: $2.517 billion (up from $2.332 billion for the same quarter of the previous year)
- Revenues increased by 7.93% over the last 12 months
- Total cruise operating expenses: $1.481 billion (up from $1.360 billion for the same quarter of the previous year)
- Total cruise operating expenses increased by 8.9% over the last 12 months
- Some margin squeeze being experienced by Royal Caribbean Cruises with its costs and expenses growing at a rate faster than their revenues
- Net income: $273.136 million (down from $315.703 million for the same quarter of the previous year)
- Diluted earnings per share: $1.30 (down from $1.50 for the same quarter of the previous year)
- Diluted number of shares outstanding: 209.767 million (down from 210.051 million for the same quarter of the previous year)
- Cash and cash equivalents: $243.738 million
- Cash and cash equivalents per share: $1.16
- Cash and cash equivalents makes up 0.98% of the group's market capital
- Cash and cash equivalents makes up 0.8% of the group's total assets
- Accounts receivable: $305.821 billion
- Accounts receivable makes up 1% of total assets
- Property and equipment: $25.466 billion
- Property and equipment makes up 83.9% of Royal Caribbean Cruises
- Stockholders equity in Royal Caribbean Cruises: $12.163 billion
- Stockholders equity per share: $57.98
- So Royal Caribbean Cruises is trading at 2.03 times its stockholders equity per share which is outside the expected range of between 2 and 4 times that most firms tend to trade at
- Cash generated from operations for the fiscal year: $3.716 billion
- Cash generated from operations per share for the fiscal year: $17.71
Royal Caribbean Cruises' management commentary on their 4th quarter 2019 earnings
MIAMI, Feb. 4, 2020 /PRNewswire/ -- Royal Caribbean Cruises Ltd. (NYSE: RCL) today reported 2019 US GAAP earnings of $8.95 per share and adjusted earnings of $9.54 per share and announced that 2020 adjusted earnings are expected to be in the range of $10.40 to $10.70 per share. Given the fluidity of the circumstances related to the Wuhan Coronavirus and the actions being taken to contain its spread, the 2020 adjusted guidance provided herein does not include any financial impact related to this subject
In addition, the company today introduced its 20>25 by 2025 program which is designed to give people throughout the company specific goals to work towards. The program includes several goals by 2025: delivering $20.00 adjusted earnings per share; further reducing the company's carbon footprint by 25%; delivering strong returns on invested capital; and continuing to improve on record guest satisfaction and employee engagement metrics.
"We are pairing ambitious business and environmental goals because we all understand that businesses must do our part to meet the needs of all our stakeholders," said Richard D. Fain, chairman and CEO. "Over the last years, our people have worked hard to deliver strong performance on both profitability metrics and important societal goals. This 20>25 by 2025 program should help take those efforts to the next level."
FULL YEAR 2020 GUIDANCE
The company is very encouraged about the demand environment for 2020. Wave Season has started on a strong note with overall rates higher than same time last year and booked load factors ahead of same time last year on a like-for-like basis. The company's new ships and new attractions are a major driver not only of revenue, but of the strength of its brands.
Demand for the core products is very strong across all quarters. Recent geopolitical events such as the brushfires in Australia and unrest in the Middle East have impacted demand for certain itineraries, but the strength of the core products has more than compensated.
The company expects a Net Yield increase in the range of 2.25% to 4.25% in Constant-Currency and 2.5% to 4.5% As-Reported for the full year. The company is very excited about the introduction of four new ships during 2020. These new ships will be important contributors to the yield growth and profitability. The timing of the new ship deliveries will result in a more significant yield growth in the second half of the year than in the first half.
"Our yield outlook for 2020 is very encouraging with higher pricing on top of an exceptional 2019 performance," said Jason T. Liberty, executive vice president and CFO. "It's clear that the Coronavirus will impact revenue in China in the short term, but we are a long-term business and our plans to continue growing this profitable market remain unchanged. We are also very excited about the introduction of our 20>25 by 2025 goals. Our formula for success is simple and our path towards our EPS goal is driven by moderately growing our yields, effectively managing our costs and moderately growing our business. Meanwhile, our emissions target, which is one of our many sustainability initiatives, will further focus our world-class design, engineering and operations teams to meaningfully improve our environmental impact."
NCC excluding Fuel are expected to be up 1.75% to 2.25 % in both Constant-Currency and As-Reported basis. Operating costs for the full year show continued good discipline, although the cadence of costs between quarters will vary. Costs in the first half of the year are expected to be higher than the second half driven by more drydock days and the timing of ship deliveries.
Excluding any impact from the Coronavirus and taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company estimates 2020 Adjusted EPS will be in the range of $10.40 to $10.70 per share.
Coronavirus update
We have now cancelled 8 cruises out of China ending March 4th, and also modified certain itineraries in the region which overall have an estimated impact of $0.25 per share.
The company has also implemented several measures to protect guests and crew:
There are still too many variables and uncertainties regarding this outbreak to calculate the impact on the business. For example, we expect that an erosion of consumer confidence in China could have an additional impact on load factor and rate until the market normalizes. If these travel restrictions and concerns over the outbreak continue for an extended period of time, they could have a material impact on the overall financial performance of the company.
"We are pairing ambitious business and environmental goals because we all understand that businesses must do our part to meet the needs of all our stakeholders," said Richard D. Fain, chairman and CEO. "Over the last years, our people have worked hard to deliver strong performance on both profitability metrics and important societal goals. This 20>25 by 2025 program should help take those efforts to the next level."
FULL YEAR 2020 GUIDANCE
The company is very encouraged about the demand environment for 2020. Wave Season has started on a strong note with overall rates higher than same time last year and booked load factors ahead of same time last year on a like-for-like basis. The company's new ships and new attractions are a major driver not only of revenue, but of the strength of its brands.
Demand for the core products is very strong across all quarters. Recent geopolitical events such as the brushfires in Australia and unrest in the Middle East have impacted demand for certain itineraries, but the strength of the core products has more than compensated.
The company expects a Net Yield increase in the range of 2.25% to 4.25% in Constant-Currency and 2.5% to 4.5% As-Reported for the full year. The company is very excited about the introduction of four new ships during 2020. These new ships will be important contributors to the yield growth and profitability. The timing of the new ship deliveries will result in a more significant yield growth in the second half of the year than in the first half.
"Our yield outlook for 2020 is very encouraging with higher pricing on top of an exceptional 2019 performance," said Jason T. Liberty, executive vice president and CFO. "It's clear that the Coronavirus will impact revenue in China in the short term, but we are a long-term business and our plans to continue growing this profitable market remain unchanged. We are also very excited about the introduction of our 20>25 by 2025 goals. Our formula for success is simple and our path towards our EPS goal is driven by moderately growing our yields, effectively managing our costs and moderately growing our business. Meanwhile, our emissions target, which is one of our many sustainability initiatives, will further focus our world-class design, engineering and operations teams to meaningfully improve our environmental impact."
NCC excluding Fuel are expected to be up 1.75% to 2.25 % in both Constant-Currency and As-Reported basis. Operating costs for the full year show continued good discipline, although the cadence of costs between quarters will vary. Costs in the first half of the year are expected to be higher than the second half driven by more drydock days and the timing of ship deliveries.
Excluding any impact from the Coronavirus and taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company estimates 2020 Adjusted EPS will be in the range of $10.40 to $10.70 per share.
Coronavirus update
We have now cancelled 8 cruises out of China ending March 4th, and also modified certain itineraries in the region which overall have an estimated impact of $0.25 per share.
The company has also implemented several measures to protect guests and crew:
- Regardless of nationality, the company will deny boarding to any individual who has travelled from, to or through mainland China or Hong Kong in the past 15 days. These guests will receive full refunds.
- There will be mandatory specialized health screenings performed on:
- Guests who have been in contact with individuals who have traveled from, to or through mainland China or Hong Kong in the past 15 days;
- All holders of China or Hong Kong passports – regardless of when they were last in China or Hong Kong;
- Guests who report feeling unwell or demonstrate flu-like symptoms.
- These standards also apply to all employees, crew members and contractors of RCL
There are still too many variables and uncertainties regarding this outbreak to calculate the impact on the business. For example, we expect that an erosion of consumer confidence in China could have an additional impact on load factor and rate until the market normalizes. If these travel restrictions and concerns over the outbreak continue for an extended period of time, they could have a material impact on the overall financial performance of the company.
Royal Caribbean Cruises (NYSE: RCL) stock price history
The image below, obtained from Google shows the stock price history of Royal Caribbean Cruises over the last 5 years. And its been a good time for Royal Caribbean Cruises stockholders with the stock price 5 years ago being around $75.70 and its currently trading at $117.92. That is a decent return of 55.78% provided to Royal Caribbean Cruises stockholders over the past 5 years.
The stock of Royal Caribbean Cruises is trading at close to the midpoint between its 52 week high and its 52 week high which to us is an indication that the short term sentiment and momentum of Royal Caribbean Cruises stock is neutral. However in recent weeks the stock of Royal Caribbean Cruises has seen a sharp decrease in its price, so over the very short term the sentiment and momentum of Royal Caribbean Cruises stock is very negative
The stock of Royal Caribbean Cruises is trading at close to the midpoint between its 52 week high and its 52 week high which to us is an indication that the short term sentiment and momentum of Royal Caribbean Cruises stock is neutral. However in recent weeks the stock of Royal Caribbean Cruises has seen a sharp decrease in its price, so over the very short term the sentiment and momentum of Royal Caribbean Cruises stock is very negative
Recent coverage of Royal Caribbean Cruises
The extract below covers the latest earnings report of Royal Caribbean Cruises as obtained from TheStreet.com
Royal Caribbean (RCL) - Get Report shares could be under pressure Tuesday after the company announced it will cancel eight cruises out of China through March 4 while also modifying “certain itineraries in the region.” The company said that it will take a charge of 25 cents a share from the cancellations. That number would be steeper than the “$3 to $4 million of revenue, and about $0.02 of earnings,” that Wedbush managing director James Hardiman estimated each lost voyage would cost the company. Hardiman made his comments in an interview with Yahoo.
Royal Caribbean also issued guidelines to “help protect guests and crew” that include denying boarding to any individual who has traveled from, to or through mainland China or Hong Kong in the past 15 days regardless of nationality, and mandatory health screenings for certain high-risk guests. While the company said it will record the charge it also added “there are still too many variables and uncertainties regarding this outbreak to calculate the impact on the business.”
Read the full article here
Royal Caribbean (RCL) - Get Report shares could be under pressure Tuesday after the company announced it will cancel eight cruises out of China through March 4 while also modifying “certain itineraries in the region.” The company said that it will take a charge of 25 cents a share from the cancellations. That number would be steeper than the “$3 to $4 million of revenue, and about $0.02 of earnings,” that Wedbush managing director James Hardiman estimated each lost voyage would cost the company. Hardiman made his comments in an interview with Yahoo.
Royal Caribbean also issued guidelines to “help protect guests and crew” that include denying boarding to any individual who has traveled from, to or through mainland China or Hong Kong in the past 15 days regardless of nationality, and mandatory health screenings for certain high-risk guests. While the company said it will record the charge it also added “there are still too many variables and uncertainties regarding this outbreak to calculate the impact on the business.”
Read the full article here
Royal Caribbean Cruises (NYSE: RCL) latest stock valuation
So what do we value Royal Caribbean Cruises at based on their latest earnings report and their fiscal guidance provided? Based on their earnings report and the guidance provided especially considering global events affecting them such as the wildfires in Australia and the Coronavirus from Wuhan. Based on their earnings report our valuation model provides a target price (full value) price for Royal Caribbean Cruises at $128.90 a stock. We therefore believe the stock of Royal Caribbean Cruises is slightly undervalued
We usually recommend that long term fundamental or value investors look to enter a stock at at least 10% below our target price, which in this case is $128.90, so we would suggest looking to enter into the stock of Royal Caribbean Cruises at $116 or below.
We expect the stock of Royal Caribbean to pull back a bit at first following investors concerns regarding the Coronavirus but the stock should recover from this relatively quickly if the virus is continued quickly enough.
We usually recommend that long term fundamental or value investors look to enter a stock at at least 10% below our target price, which in this case is $128.90, so we would suggest looking to enter into the stock of Royal Caribbean Cruises at $116 or below.
We expect the stock of Royal Caribbean to pull back a bit at first following investors concerns regarding the Coronavirus but the stock should recover from this relatively quickly if the virus is continued quickly enough.
Next earnings release of Royal Caribbean Cruises
It is expected that Royal Caribbean Cruises 1st quarter 2020 fiscal year earnings report will be released in early May 2020