While overshadowed by the announcement that
its parent company was acquiring Spanish cruise operator Pullmantur
for $900 million, Royal Caribbean International's revelation that
its third-quarter, closer-in bookings were better than expected in
both the Caribbean and Europe was the first good news to come out
of the Caribbean this year.
"July and August were
clearly more robust than we had been anticipating in both markets,"
RCI President Adam Goldstein said. "Occupancy ended up higher than
we had been expecting. It drove up ticket revenue and onboard
The results prompted
RCCL to adjust its third-quarter earnings-per-share estimates to
$1.60 from $1.49, its full-year earnings-per-share estimates to
$2.95 from $2.72 and its fiscal-year 2007 earnings-per-share
estimates from $2.48 to $2.59.
It forecasted that
its third-quarter net yield would increase about 3% over
RCCL said it
continued to expect full-year net yields to increase in the range
of 3% to 4% over 2005, and said it expected earnings to be in the
range of $2.90 to $3 per share. Those forecasts excluded any
potential impact from the Pullmantur acquisition.
Only a month earlier,
RCCL CEO Richard Fain blamed slowness in the Caribbean for dragging
down the company's second-quarter profits. At the time, Goldstein
said the line was aggressively putting promotions in the
marketplace to increase yield.
to RCCL's third-quarter guidance were mixed.
Glen Reid of Bear
Stearns adjusted his estimates for the higher occupancy, ticket
prices, and onboard spending reported, and he raised his
earnings-per-share estimates slightly in accordance with Royal
Caribbean's. However, he did not raise his stock rating from peer
"We believe trends
will likely slow," Reid said, "and [full-year 2007] estimate
revisions are more likely to be down than up, given fuel prices and
macro pressures. We think 2007 estimates are too high."
Tim Conder, an
analyst at AG Edwards, said that Wall Street "was modestly too
pessimistic with [second-half 2006] estimates" before, and that the
results should produce "some near-term strength coupled with short
covering. However, pricing concerns into early '07
"I do feel that RCL
low-balled their [third-quarter 2006] guidance at the end of July,"
he said. So the recent increase isn't
that significant overall."
Jake Balzer of Guzman
& Son also said that Wall Street had been too
"At this point, I
really doubt they would have raised guidance unless they were
pretty sure they could hit the numbers," he said. "I was above the
street and guidance already, so the bump wasn't really a surprise
He also wrote that
"given our estimate that the market is approximately 25%
undervalued, ... we expect RCL to significantly outperform, and
view this as a compelling opportunity."
acquisition was expected to be neutral or marginally accretive to
2007 earnings. But the debt RCCL was incurring in the deal caused
concern among investors.
RCCL said it had
signed an agreement with Pullmantur's shareholders to buy all its
capital stock for $551 million, plus its net debt of about $346
Fain said in a
conference call with investors that the acquisition was being
financed by a bridge loan facility -- short-term credit used until
a company arranges longer-term financing -- from Morgan Stanley,
Goldman Sachs, Citibank and JP Morgan-Chase.
Because of the new
debt, Moody's Investors Service changed its outlook on RCCL to
stable from positive, Reuters reported.
Standard & Poor
said it might cut the cruise line operator's bond rating to
contact reporter Johanna Jainchill, send e-mail to [email protected].