RCCL's quarter: Profits drop 21%, revenue up 8.3%

Royal Caribbean Cruises Ltd, said its second-quarter profits decreased 21% from 2005, but CEO Richard Fain said he was pleasantly surprised by what he termed better-than-expected results.

Second-quarter income dropped to $122.4 million, from $155.2 million in the same quarter last year, with the company citing continued softness in the Caribbean, surging fuel costs, and a compressed booking window.

Royal Caribbeans stock price took a 4% dive after the results were released.

The company reported an 8.3% revenue increase over the same period last year, to $1.3 billion from $1.2 billion, due mostly to higher onboard earnings and strong pricing.

As was true in the first quarter, fuel was the main culprit, absorbing the strong revenues. At-the-pump prices averaged $460 per metric ton, compared with $337 per metric ton in 2005. Actual fuel costs increased $34 million. The company has hedged 58% of its fuel for the second half of this year.

Net cruise costs increased 14.4%. Fuel accounted for 5.4% of the increase, and the remaining 9% was due mostly to expenses for the Celebrity Century revitalization and other refurbishment projects, the inaugural of the Freedom of the Seas, timing of market expenses and inflationary pressures.

Financial services firm AG Edwards analyst Tim Conder downgraded both Royal Caribbean and Carnival Corp. to hold from buy after the call, citing near-term limitations on visibility related to bookings and on-going escalations in fuel costs. He also noted a much more cautionary tone from Royal Caribbean management.

Jake Balzer of Guzman & Co., on the other hand, reaffirmed an outperform rating. He said that despite rough waters near term, he continued to view cruising as having attractive long-term fundamentals, and cited the industrys demographic drivers and value proposition relative to land-based vacations.

He also said that Royal Caribbean is a more aggressive industry player than Carnival.

To contact the reporter who wrote this article, send e-mail to Johanna Jainchill at [email protected].

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