Royal Caribbean Cruises Ltd (NYSE: RCL)


Royal Caribbean Cruises Ltd (NYSE: RCL)

Royal Caribbean Taking On Water

Royal Caribbean Cruises Ltd stock had been on a steady climb over the past year tacking on nearly 100%. The company experienced a significant catalyst tailwind with the sharp decline in energy prices.


Shares of Royal Caribbean Ltd traded lower by 9% in Friday’s session on high relative volume after its earnings report. Despite the Q1 earnings beat, the real concern was the very weak forward guidance which was slashed as the dollar strengthens and a rebound and energy prices is expected.

Richard Fain, Chairman and CEO had the following comments on 2014 earnings as well as the outlook for the remainder of 2015.

“The profitability of our new ships, coupled with the power of our family of brands, is enabling us to deliver step change performance again in 2015. On our last earnings call we were pleased to report that earnings for 2014 were up 40% over the previous year. We were then pleased to give guidance that projected a further 40% increase in our earnings this year.”

“Unfortunately the currency markets have not cooperated and, as a result of the weakness in Sterling, Aussie dollars, Euros, etc., we now expect 34% earnings growth year over your. Not quite 40% but definitely not bad. Our consistent focus remains solidly on the Double-Double program and we remain committed to achieve the 2017 goals of double-digit ROIC and double our record 2014 profitability.”

The full earnings call transcript can be viewed on Seeking Alpha.

Another prominent headwind that the company will face is in the international market with the strengthening dollar. Royal Caribbean Ltd operates cruise vacations out of China, Europe and a number of other locations internationally that will experience the pressure due to the way Royal Caribbean Ltd accounts for all sales in the U.S. dollar meaning their international clients, on average, will be spending less when converted to the U.S. dollar and ultimately lower revenues.

The bottom line is that the cruise industry has been under close watch as of late. Recently, hundreds of passengers have become ill while aboard various cruise line operators sparking controversy over the procedures taken by the companies before embarkation and while at sea. These concerns coupled with the headwinds of a strengthening dollar and rising fuel prices undoubtedly makes for rough seas ahead.